AUD: Looking at RBA for direction? – Westpac

Sean Callow, Research Analyst at Westpac, explains that the US dollar found support Friday from the yield rise in response to stronger wages growth and along with increased equity volatility, this should weigh on AUD/USD in the week ahead.

Key Quotes

“We will also hear a lot from the RBA on its return from summer holidays.”

“Westpac’s base case remains that the US dollar will rise against most major currencies over the year ahead, supported by three more increases in the Federal Reserve’s benchmark interest rate. If these hikes are delivered and the RBA keeps its cash rate at 1.5%, then the higher yields on offer in the US should help drive AUD/USD to our year-end forecast of 0.72.”

“In the week ahead, Australia’s calendar probably won’t help the Aussie’s cause. While the trade position should swing back from deficits to a modest surplus in Dec, retail sales are expected to have contracted after a strong November.”

“Moreover, the RBA Board meeting on Tuesday could see increased attention on the currency. While there is very little market expectation of the cash rate being changed from 1.5% in the next few months, plenty has happened since the RBA’s last meeting on 5 December. This includes the surge in AUD/USD from around 0.75 to highs above 0.81. In its December statement, the RBA toned down its concern over AUD strength, noting merely that the Aussie “remains within the range that it has been in over the past two years.” This language could be strengthened.”