AUD: A less positive backdrop – ANZ

Cameron Bagrie, Research Analyst at ANZ suggests that they remain biased towards a softer AUD as while data remains mildly positive on the domestic front, the yield differential will continue to narrow.  

Key Quotes

“On the domestic front, the outlook for growth remains mildly positive, with the recent strength in the labour market bright. That said, a sustained pickup in wages is the pre-condition of any hawkish shift from the RBA; and, despite the stronger labour market, the balance of risks is now tilted marginally towards further easing. In the near term, we think that the market will simply view the RBA as being on hold. So, for now, global drivers remain centre stage.”

“A less favourable shift in risk sentiment and a lack of momentum in commodity prices will also weigh on the AUD.”

“In the near term, however, we do not foresee any extreme downside. First, global growth continues to look in reasonable shape and, while momentum may start to pick up, the global economic expansion remains broadly based and likely to continue well into 2018. Further, financial conditions remain largely accommodative and liquidity remains plentiful in level terms, suggesting that acting on concerns around tightening look premature at this stage.”

“While the AUD is likely to underperform, moves are unlikely to be extreme for now.”