AUD/USD continues to be well supported – Lloyds Bank

According to the analysts at Lloyds Bank, despite selling-off in early March, the Australian dollar has rebounded strongly and year-to-date remains the best-performing developed market currency and continues to be well supported by the positive trend in base metal prices, continued stability in China and the benign risk environment.

Key Quotes

“The domestic economy has recovered from its dip in Q3 2016, with Q4 GDP growth rising to an above-consensus 2.4%y/y. However, last quarter’s private capital expenditure fell sharply and the trade surplus for January contracted significantly. Nonetheless, the RBA left policy rates unchanged at 1.50% at its latest meeting, with Governor Lowe providing an upbeat assessment of the economy’s prospects. More recently, RBA board member Harper indicated that the policy path was unlikely to change in the near term.”

“We view the risks to Australian monetary policy skewed towards tightening, particularly in the second half of the year. In the US, following March’s 25bp increase in the Fed funds rate, the FOMC have indicated they are likely to raise interest rates twice more in 2017, with the market re-adjusting its expectations in recent weeks. Following a short period of consolidation, we expect AUD/USD to appreciate towards 0.81 by end-2017.”