AUD to maintain the 0.72-78 range - ANZ

Katie Hill, Research Analyst at ANZ, continues to expect that the AUD will remain stuck in a 0.72-78 range over the next two years.

Key Quotes

“Much of the good news that propelled the AUD towards of the top of this range in Q1, such as the broadening global growth environment and improved risk appetite, looks well priced into the currency. With risk appetite looking stretched and cyclical momentum in the global economy likely around its peak now, these sources are unlikely to provide further impetus to the AUD.” 

“Fundamental drivers, namely commodities and Australian-US front end rate differentials, are also unlikely to provide a catalyst for a range break. These drivers have diverged sharply since mid-2016 as commodity prices have bounced at the same time as rate differentials have continued to narrow. Historically, similar periods of divergence have resulted in an extended period of the AUD trading in tight ranges.”   

“These trends are likely to continue. Domestically, Australia still looks likely to be the laggard in this global rates cycle. The continuing lack of inflationary pressures suggest that the RBA is likely to remain firmly on hold at the same time that a number of central banks globally (such as the Fed, ECB, and BoE) are sounding more confident. This is consistent with a steady grind lower in Australian-US front end rate differentials. It also suggests that the AUD could underperform on the crosses.”  

“In contrast, key commodity prices could be sustained around current levels as excess capacity in the Chinese steel and coal sectors continues to be removed.”