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Delay in Fed lift-off to support AUD/USD – Westpac

FXStreet (Delhi) – Sean Callow, Research Analyst at Westpac, suggests that the cooling expectations for Fed rate rise is likely to help AUD/USD as markets now place only a 35% probability of the Fed raising interest rates this year.

Key Quotes

“Westpac’s base case remains for a Dec hike, backed by the job market and with inflation likely to trend higher “as the temporary factors that are currently weighing on inflation wane” (quoting Fed chair Yellen’s recent speech). But at least short term, markets will be sceptical, leaving investors doubting the Fed will hike any time soon.”

“Meanwhile investor concerns over China will linger. While the official Sep manufacturing PMI ticked up a fraction, it is still below the key 50 mark. Our China Data Pulse index (proportion of releases stronger than the previous), is a dismal 27%, the weakest reading since Dec 2014. This paints a mixed picture for AUD/USD.”

“Commodity prices have had a somewhat softer tone over the week but remain well above July lows. Speculative positioning is firmly short, providing occasional AUD support from reduction of these positions (the nice bounce in response to the China PMIs last Thursday being a case in point).”

“Yet China’s holidays won’t dissipate concerns over its growth pulse, limiting the upside on AUD/USD. On the week, 0.6950-0.72 should capture the bulk of trade (perhaps all trade). But AUD risks still seem lower multi-week/month as iron ore prices falter in response to ramped up supply and an interest rate rise in the US looks more plausible.”

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