AUD/USD: Plenty of breathing room - Westpac

Sean Callow, Research Analyst at Westpac, explains that the mid-November orderly decline in AUD/USD took it to 0.7532, a low since June, but there has been support from broad US$ weakness (the greenback is down against all G10 currencies over the week) and the upbeat tone of RBA governor Lowe.

Key Quotes

“Lowe’s optimism on Australia’s growth outlook produced a bounce in AUD but rates markets are still pricing too much risk of a rate hike in 2018 (65-70%) if Westpac’s RBA call is correct.”

“Into early next week, AUD/USD has plenty of breathing room above the 0.7515/20 support area we mentioned last week, especially given mostly calm equity markets and the US holiday(s).”

“The longer term outlook for AU-US yield spreads suggests AUD/USD could falter around 0.7650. But the positive Australian growth outlook will be reinforced if capex matches the RBA’s hopeful mood.”