AUD: Brighter skies? - Rabobank

Jane Foley, senior FX strategist at Rabobank, suggests that they foresee plenty of challenges for the AUD in the year ahead even as AUD/USD has climbed around 2.7% from its lows last week due to optimism regarding progress on Chinese/US trade talks.

Key Quotes

“Market sentiment regarding the outlook for RBA policy has altered significant since the start of last year. Then there were several commentators in the market predicting that the RBA could hike rates before the end of 2018.  Currently the market is debating the chances that the next policy move will indeed be a cut – a view that we sympathise with.”

“While the AUD is likely to continue reacting to the good and the bad news regarding the US and China trade talks, this issue is likely to drag on in some form for months.  Today’s headlines suggest that progress is being made on areas including energy and agriculture but further apart of ‘harder issues”.  These may include matters such as intellectual property rights and wider support for strategic industries.”

“As China stimulates its economy to fights the effects of a slowdown, Australia exporters may breathe a sigh of relief in the first instance.  However, the need to support growth suggests the potential for downside pressure on the CNY in the months ahead and this is a risk to China’s trading partners.  We see scope for AUD/USD to end the year around 0.68.”