AUD/USD: Broader USD moves dominate the pair – Danske Bank

Minna Kuusisto, Analyst at Danske Bank, notes that the AUD moves since December have been led by the broad USD index and the appreciation momentum of USD has eased in January as Chinese officials have taken decisive measures to support the CNY (and weaken the USD).

Key Quotes

“Another reason for the USD rally taking a breather could be that markets are starting to lose patience as the lack of details and concrete economic plans mark the upcoming inauguration of Donald Trump. Led by the USD developments, AUD sank to a seven-month low before year-end. In January, the cross has recovered an impressive 4%, pushing the AUD to overbought territory. Thus, we see the pair reversing back to 0.72-0.73 in1-3M.”

“For 6-12M, we keep our forecasts unchanged and expect monetary policy divergence (Fed hikes) to be the key factor curbing AUD strength even though stronger global growth and higher commodity prices give support.”