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RBA is watching the AUD - TDS

FXStreet (Guatemala) - Annette Beacher, Head of Asia-Pacific Research I FX and Rates Strategy at TD Securities noted that for the first time since early March, the AUD breaks through $US0.90.

Key Quotes:

“For months, the currency was stuck in a $US0.92‐95 range, appearing to be supported at the bottom of the range by ‘yield‐seekers’. Where are they now?”.

“The RBA will not be standing in the way of this AUD fall, and indeed will welcome the fact that this four‐cent fall over the past week has been via orderly markets, not as a result of a risk‐off or panicky trading, or worse, a dysfunctional market”.

“We expect the AUD to trade sustainably below $US0.90 next year, following the terms of trade and yield/spread compression, allowing the RBA to deliver +100bp to a still‐accommodative 3.5%”.

“After the AUD fell from $US1.02 to $US0.92 over May/June last year, there was an unexpectedly rapid pass‐through of the weaker currency into higher tradable inflation by the December qtr. At the time, the RBA thought the rapid pickup could be due to “noise”. However, annual tradable inflation kept accelerating, and reached the top of the RBA’s 2‐3% target band (2.9%) by mid‐year, i.e. a year later. If the AUD keeps falling from here, even if in an orderly manner, the RBA will be watching very closely for a ‘second round’ of lower‐AUD‐led price increases”.

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