AUD Rally: It’s Complicated – Westpac
Sean Callow, Research Analyst at Westpac, suggests that the optimism over AUD has cooled somewhat.
Key Quotes
“The
global risk mood soured early in the week despite what seemed to us to
be a healthy set of US employment data: robust job creation and an
uptick in wages growth but with markets not fearing a Fed rate hike any
time soon. Closer to home, Australia’s Feb retail sales data (fl at)
didn’t help AUD’s cause but the key event was of course the RBA Board
meeting, which offered mixed news for the Aussie.
On the positive
side, the cash rate was kept at 2% where it has been since last May. As
in March, “the Board judged that there were reasonable prospects for
continued growth in the economy.” But low inflation still provides
“scope for easier policy” and as the RBA dropped the neutral language on
AUD that was used from Aug 2015 to Mar 2016. Governor Stevens warns
that further AUD gains could “complicate” the adjustment to the end of
the mining investment boom.
Pricing for a May rate cut is a wary
35% but this could push towards 50/50 if next Thursday’s jobs data
disappoints. The 120k surge in jobs in Oct-Nov is looking even more like
statistical noise, being followed by a net -7k over summer. A soft
reading would come ahead of what should be muted Q1 inflation data on
27/4, keeping markets pondering a resumption of RBA easing. But our base
case remains no RBA easing, while USD is likely to continue to be
restrained by Fed chair Yellen’s dovish tone. Risks are still towards
AUD/USD0.78 multi-week.”
(Market News Provided by FXstreet)
