The AUD is not the only G10 currency that has been on a wild ride in the past few weeks, the JPY clearly takes that crown. That said, between mid-July and the start of this week, AUD/USD retraced all of the gains that it had made since late April, before showing signs of recovery, Rabobank’s senior FX strategist Jane Foley notes.
“The reasons for the swings are linked both to a change in expectations regarding RBA policy and to the AUD’s traditional role as the ‘higher risk’ currency within the G10, which left it out of favour in the recent market ructions. The ‘higher risk’ status, however, is no longer as justifiable as it used to be in view of Australia’s good fundamental backdrop. We maintain our 6-month forecast of AUD/USD0.70.”
“The recent release of Australian Q2 CPI inflation on July 31, wiped out remaining expectations that the RBA would hike rates at its August 6 policy meeting. While the AUD softened on the data, the market had already begun to price in a softer path of RBA policy ahead of the inflation release. This was reflected in the lower level of AUD/USD from mid-July.”
“This morning RBA Governor Bullock stated that ‘the Board remains vigilant with respect to the upside risks on inflation and will not hesitate to raise rates if it needs to.’ We have not amended our AUD forecasts this week and continue look for a move to 0.68 on a 3-month view. In the short term we favour buying AUD vs. the EUR and look for a move back below EUR/AUD1.66.”
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