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AUD/USD: We continues to see downside risks – Rabobank

FXStreet (Córdoba) - Jane Foley, Senior Currency Strategist at Rabobank, points out that they still see risk for another rate cut by the Reserve Bank of Australia, particularly if China continues to print weak economic data. They project AUD/USD in 0.68 in six months.

Key quotes:

“The host of negative headlines this year concerning the job prospects for miners, Australian employment data has held up remarkable well this year. This provides some evidence that the depreciation in the AUD over the past year has helped to support a recovery in the non-mining tradable sector. At the height of the commodity boom, the overvalued AUD had subjected Australia’s non-resource linked industries to a nasty bout of Dutch disease.”

“That said, there is not much room for optimism. The latest Australian Government budget estimated that recent declines in the actual and projected iron ore price reduced expected tax receipts by $20 billion over the four years to 2017/18. When the hit to company profits and household incomes is also considered, there is plenty of reason to expect that the Australian economy has entered in a slower growth phase.”

“Comments from RBA Governor Steven’s last week that he is ‘pretty content’ with policy settings suggests there may be no imminent danger of another reduction in interest rates. However, the longer China prints weak economic data, the greater are the risks to the Australian economy.”

“We still see risk that the RBA will cut rates again this cycle to provide insulation to the economic outlook – a view which is supported by signs that the housing market activity may at last be peaking. One factor that could slow the RBA’s trigger finger would be a continued fall in the value of Australia’s effective exchange rate.”

“Either way we continue to see downside risks for AUD/USD towards 0.68 on a 6 month view”.

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