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AUDUSD potential upside undermined? – ANZ

FXStreet (Edinburgh) - Analyst Daniel Been at ANZ sees the AUD could gain further upside, although the hiking cycle in the US economy threatens to cap the up move.

Key Quotes

“Reserve Bank of Australia (RBA) Governor Glenn Stevens gave a speech today which provided an update on the domestic economy. Broadly, the speech was a balanced one, highlighting that the economy was in better shape than it was a year ago”.

“However, at the same time, he continued to highlight challenges to the economy”.

“There were two interesting elements in this speech for the AUD. First, it highlighted that absent a large exogenous shock, the role for further monetary stimulus in supporting growth is limited”.

“And second, that the business sector is expected to be the growth leader in this cycle, but it has not yet convincingly embraced this role”.

“This leaves the RBA firmly in neutral, and highlights that the next (eventual) move in the cash rate is higher”.

“While hikes are not yet priced in, the fact that the market has now been told that the easing bias is no longer in place (and is unlikely to return this cycle) removes another reason for the AUD to rally”.

“With this out the way, we re-emphasise that the external environment is the key driver of the AUD in this cycle. Here, our expectation is that the dynamics around the tightening cycle in the US will play a central role in the depreciation of the AUD, while the success of the policy induced deleveraging of the Chinese economy will also be key”.

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