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15 May 2015
AUD/USD set to weaken towards 0.70 – Capital Economics
FXStreet (Barcelona) - Paul Dales, Chief Australia & New Zealand Economist at Capital Economics, explains that the recent AUD/USD strength is due to the widening interest rate gap between the US and Aussie, and the economic outlook for Australia suggests the pair might eventually weaken to 0.70.
Key Quotes
“The RBA will have been dismayed to see the Australian dollar rise above US$0.80. Of course, the rise is due to US dollar weakness just as much as Australian dollar strength.”
“The soft tone of the economic news in America has led the markets to push back their expectations of when the Fed will raise US interest rates, while the markets have become less confident that rates in Australia will be reduced further.”
“The subsequent widening in the expected gap between interest rates in Australia and the US at the end of this year explains all the strengthening in the Australian dollar.”
“None of this dramatically alters the RBA’s thinking. After all, the forecasts contained in May’s Statement on Monetary Policy were based on an oil price of $70 a barrel and an exchange rate of US$0.80. Even so, the RBA has made no secret of its desire for the dollar to weaken to US$0.75 or below.”
“Overall, the scheduled fiscal drag highlights that the burden to support the economy lies with the RBA and the latest market moves suggest that it may have to work a bit harder.”
“As such, we maintain our below-consensus forecasts that the RBA will yet cut interest rates to 1.5% and that the Australian dollar may eventually weaken to US$0.70”
Key Quotes
“The RBA will have been dismayed to see the Australian dollar rise above US$0.80. Of course, the rise is due to US dollar weakness just as much as Australian dollar strength.”
“The soft tone of the economic news in America has led the markets to push back their expectations of when the Fed will raise US interest rates, while the markets have become less confident that rates in Australia will be reduced further.”
“The subsequent widening in the expected gap between interest rates in Australia and the US at the end of this year explains all the strengthening in the Australian dollar.”
“None of this dramatically alters the RBA’s thinking. After all, the forecasts contained in May’s Statement on Monetary Policy were based on an oil price of $70 a barrel and an exchange rate of US$0.80. Even so, the RBA has made no secret of its desire for the dollar to weaken to US$0.75 or below.”
“Overall, the scheduled fiscal drag highlights that the burden to support the economy lies with the RBA and the latest market moves suggest that it may have to work a bit harder.”
“As such, we maintain our below-consensus forecasts that the RBA will yet cut interest rates to 1.5% and that the Australian dollar may eventually weaken to US$0.70”