Morgan Stanley: Australian Dollar Could Lag as AI Stocks Swing

Key Facts

Morgan Stanley said the Australian dollar could follow a defensive pattern in the near term and lag the U.S. dollar, as it typically moves with investor sentiment toward stocks linked to artificial intelligence. The assessment places volatility in the U.S. technology sector among the external factors affecting the Australian currency, alongside domestic economic indicators. In market-close data provided by EL7, the Australian dollar/U.S. dollar pair fell from 0.69977 on November 2 to 0.68603 on November 6. It then rose to 0.68955 on November 8 and 0.69223 on November 9. Morgan Stanley said the Australian dollar "could lag because it tends to move with investor sentiment toward AI-driven stocks."

The currency’s sensitivity comes as AI-linked technology stocks have swung amid investors’ reassessment of companies and the returns expected from data center investments. The Reserve Bank of Australia said in its August monetary policy report that shares in some foreign companies linked to AI had become more volatile as those returns were reassessed. The bank says the Australian dollar typically moves with global equity markets, rising when prices advance and tending to fall when they decline. Moves in technology stocks could therefore feed through to the currency by changing investors’ risk appetite. This channel matters as part of the debate about the AI sector is tied to the pace of data center construction and its capital spending.

On U.S. policy, Morgan Stanley said decisive Democratic victories had reinforced expectations of restrictions on data centers. The bank added that potential state-level rules could divide the country into areas that allow these centers to be built and others that do not. The bank identified Gina Hinojosa’s election as Texas governor as the most important electoral result for data center development. Hinojosa said she would block permits if a project did not benefit Texas residents or they had not been consulted. In Ohio, the bank said Amy Acton’s election as governor creates significant risks of delays to data center projects in the state.

But expectations of regulatory restrictions coincided with a more cautious assessment of the impact of the recent selloff in AI stocks. Reuters cited brokerages, including Morgan Stanley and UBS, describing the selloff in AI trades during the previous week as overdone. Those firms saw the likelihood of severe restrictions on data centers as low. Morgan Stanley said the likely ultimate effect could be to delay some projects from 2028 to 2029, rather than end the capital spending cycle. That means, in the bank’s assessment, the timing of some projects could shift without halting the sector’s spending story.

In markets, the Nasdaq was down 11% from its record high on Thursday, November 5, amid concerns that data center construction could slow as borrowing costs rise. In the following session cited in the evidence, the index rose 2.7% on November 9 as U.S. stocks advanced broadly, recouping some of the previous week’s losses. At the same time, EL7 data showed the Australian dollar/U.S. dollar pair improving from a close of 0.68955 on November 8 to 0.69223 on November 9. These closes show a partial recovery after the pair fell to 0.68603 on November 6. The currency’s link to AI stocks remains part of Morgan Stanley’s explanation for its movements, while market data show swings in both directions over the days cited.

Domestic factors combine tighter monetary policy with weak business confidence. On November 3, the Reserve Bank of Australia raised its cash rate target by 25 basis points to 4.85%. The decision was not unanimous, with three members of the monetary policy board voting against it. Earlier, business confidence in the National Australia Bank’s September survey fell 4 points to -13, marking its third consecutive monthly decline. The bank attributed weak confidence to higher interest rates, global uncertainty and rising fuel and diesel costs.

Attention now turns to the National Australia Bank’s business confidence survey, due on November 10, 2026. The Trading Economics calendar shows a previous reading of -13 and a forecast of -14 for the index. In forecasts published in November, the Reserve Bank of Australia said headline inflation could peak at 4.5% in the December 2026 quarter and remain above 3% until late 2027. The bank also raised its forecasts for growth among Australia’s major trading partners, citing improved prospects for AI-related activity and resilient demand more broadly. But it forecast slower growth over the following two years as the boost from AI activity fades and China’s slowdown continues. A near-term sector event is Nvidia’s announcement of its third-quarter fiscal 2027 results on November 17, which Reuters said could affect AI trading alongside Anthropic’s initial public offering.