Australia: Domestic economy unlikely to be a key driver for AUD/USD over Q1 - Westpac

In view of the Sean Callow, Research Analyst at Westpac, Australia’s domestic economy is unlikely to be a key driver for AUD/USD over Q1, with the RBA showing tolerance for both sub-target inflation and patchy growth data, at least for now.

Key Quotes

“The resurgence of key commodity prices was probably the biggest surprise of 2016 for AUD. A year ago, the consensus forecast (Bloomberg) for spot iron ore end-2016 was $53, so the current $80 price underpins lofty AUD/USD fair value estimates. Fundamentals can make the case for the Aussie to be in the high 0.70s. But some risk premium seems warranted for AUD given concerns over the Trump administration’s focus on China trade practices.”

“In coming weeks, with the RBA firmly on hold, the US growth outlook and its impact on the US yield curve will be key. Near term, this suggests a test of the 100dma and 200dma, both just above 0.75. But this rally should fade back to 0.74 multi-week.”