23 Jul 2013
Flash: AUD/USD to enter 0.85-0.90 range, RBA to cut in Aug - UBS
FXstreet.com (Barcelona) -UBS thinks investors should remain cautious about buying the Australian dollar against both the US and New Zealand dollars.
There are several elements affecting UBS's view, the first being the dovish stance held by the RBA, with Mansoor Mohi-uddin
Head of FX at UBS Macro Research arguing "the last minutes repeated the RBA's view that the outlook for inflation gives 'some scope' for further easing, and that interest rates were appropriate for 'the time being'."
Mohi-uddin believes that if Q2 CPI tomorrow in Australia shows underlying inflation to be towards the bottom of the central bank's 2-3% band, "the RBA will cut interest rates again by 25bps on August 6" Mohi-udin said.
The UBS Strategist also adds as additional factors weighing the AUD the desire by the RBA to see a lower currency, saying "the minutes repeat the RBA's new view that the currency 'could fall further' and help rebalance the economy." Lastly, "since the RBA meeting on July 2, the latest data has continued to show weakness with business conditions at a four year low and unemployment at a four year high at 5.7%. Furthermore, retail sales growth has stalled again" Mohi-udin said.
In short, UBS expects the RBA to cut interest rates again by 25bps in August. That, "coupled with the Fed announcing tapering in September, is likely to result in the Australian dollar trading into a lower 0.85-0.90 range over the next few months in line with our longer term forecasts of 0.85 for the currency against the US dollar" Mohi-udin added.
There are several elements affecting UBS's view, the first being the dovish stance held by the RBA, with Mansoor Mohi-uddin
Head of FX at UBS Macro Research arguing "the last minutes repeated the RBA's view that the outlook for inflation gives 'some scope' for further easing, and that interest rates were appropriate for 'the time being'."
Mohi-uddin believes that if Q2 CPI tomorrow in Australia shows underlying inflation to be towards the bottom of the central bank's 2-3% band, "the RBA will cut interest rates again by 25bps on August 6" Mohi-udin said.
The UBS Strategist also adds as additional factors weighing the AUD the desire by the RBA to see a lower currency, saying "the minutes repeat the RBA's new view that the currency 'could fall further' and help rebalance the economy." Lastly, "since the RBA meeting on July 2, the latest data has continued to show weakness with business conditions at a four year low and unemployment at a four year high at 5.7%. Furthermore, retail sales growth has stalled again" Mohi-udin said.
In short, UBS expects the RBA to cut interest rates again by 25bps in August. That, "coupled with the Fed announcing tapering in September, is likely to result in the Australian dollar trading into a lower 0.85-0.90 range over the next few months in line with our longer term forecasts of 0.85 for the currency against the US dollar" Mohi-udin added.