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AUD to edge lower, but not anytime soon – Rabobank

FXStreet (Barcelona) - Jane Foley, Senior Currency Strategist at Rabobank, notes that the value of AUD will decline in the longer term, not anytime soon, in spite of the concerns about its valuation.

Key Quotes

“Even though the RBA can point to PPP values for validation of an overvalued exchange rate, this does not necessarily imply that the value of the AUD will decline any time soon.”

“The RBA maintains higher interest rates than most other developed world central banks and this is a function of Australia’s ability to sustain relatively high growth and inflation rates in recent years.”

“Australia’s higher interest rates mean that the RBA could have less success than the BoJ or the ECB in weakening its exchange rate. In particular in times of low volatility, the carry trade is set to lend the AUD support.”

“By using verbal intervention RBA officials can at the very least attempt to increase volatility and limit the attraction of carry trades for the AUD vs. the JPY and the EUR.”

“Given our view that the USD has embarked on a long term recovery, we see AUD/USD edging lower on a long term view.”

“However, we see risk of a short-covering rally in AUD/USD near-term with a view that AUD/USD will edge down towards 0.84 on a 12 mth view.”

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