AUD: Turning Points – Rabobank

AUD is in an interesting position. On the one hand, it should be able to draw support from the fact that the RBA is one of the most vulgar central banks in the G10. On the other hand, as a commodity exporter, it is vulnerable to concerns about slow growth in China, notes Jane Foley, Senior FX Strategist at Rabobank.

AUD/USD could return to 0.70 on a 6-month view

“It can be argued that the AUD’s year-to-date performance reflects the diverging impact of these fundamentals. Measured against the other G10 currencies in the year to date, the AUD is right in the middle of the pack. That said, it has climbed higher in the performance table in recent days. For a brief period this morning, the AUD was the best performing G10 currency.”

“Over the coming months, we expect AUD/USD to draw support from rate differentials as the Fed launches its rate cut cycle and as the RBA continues to look for a turning point in Australian inflation risks. Accordingly, we maintain the view that AUD/USD could return to 0.70 on a 6-month view.”

“The assumption that the RBA will be one of the last G10 central banks to cut rates is supportive for the AUD. But the dominance of iron ore and coal in Australia’s export supply and the importance of its trade relationship with China added another set of uncertainties for the AUD. The negative implications of weak iron prices and concerns about Chinese demand will temper the outlook for the AUD. Given the RBA’s driver stance, we favor buying AUD/USD on dips.”