AUD/USD could establish a new trading range between 0.7500 and 0.8000 – MUFG

Analysts at MUFG Bank, see the AUD/USD pair likely moving higher in the weeks ahead. They consider the US dollar remains vulnerable to further weakness in the near-term. 

Key Quotes:

“The USD has broken below key support levels this month triggering an accelerated sell-off. It has helped lift AUD/USD back above the 0.7500-level over the past week. Historically, the USD has tended to underperform as well in December. The weaker than expected US employment report for November is increasing pressure on both the Fed and Congress to loosen policy further heading into year end. There have been more reports that talks are making progress over a new COVID relief package which could total just over USD900 billion. Additional stimulus would reinforce investor confidence in reflation trades.”

“The improving outlook for global growth which has been led by the cyclical recovery China has helped to lift commodity prices and is set to continue. Iron ore prices have increased by over a third since the lows in September. However, we do not believe that the improvement in Australia’s terms of trade is fully reflected in the value of the AUD yet. It leaves scope for further AUD upside ahead. At the same time, long-term yields in Australia have risen back up towards 1.0% even after the RBA recently stepped up long-term purchases. The higher yields on offer have proven attractive for Japanese investors.”

“We expect AUD/USD to establish a new higher trading range between 0.7500 and 0.8000.”