AUD/USD: downside limited amid potential USD weakness - Lloyds

Analysts from Lloyds Bank point out that while there is a risk of further easing from the Reserve Bank of Australia, the decline in AUD/USD should be limited if as expected the Federal Reserve keeps rates unchanged over the next months.

Key Quotes:

“Amid heightened volatility, AUD/USD broke to new 10-month highs close to 0.7850 in mid-April. The move was driven largely by USD weakness (as oppose to AUD strength) reflecting the diminishing prospect of a US interest rate rise in June.”

“Despite the softer inflation profile, the Australian economy remains relatively stable. Retail sales rebounded last month and the unemployment rate unexpectedly improved to 5.7%.”

“While there is a risk of further policy easing this year from the RBA, if as we expect, the US Federal Reserve leaves interest rates unchanged over the coming months, the downside in AUD/USD should be limited given the potential for USD weakness.”

“We anticipate the pair trading in a relatively narrow range, edging towards 0.80 by end-2017.”