A number of macroeconomic factors will support the Australian dollar at its current level above US78 cents, according to the ANZ bank.
Currency strategists Daniel Been and Giulia Lavinia Specchia say any dip below that range would represent a buying opportunity for the currency.
Their assessment is in line with analysis from Nomura Bank last month, which recommended buying the dip on the back of any unexpected market announcements.
In ANZ’s view, one such dip may arise from this morning’s employment report. The bank is forecasting a fall of 5,000 jobs in September, against the consensus forecast of a 15,000 gain.
But if such an event occured, Been and Specchia said that Aussie would still find support from five key factors that will underpin near-term strength in the Aussie.
For starters, they expect the US dollar to consolidate in its current range following a recent push higher.
That’s important for the Aussie given “USD performance remains a key driver of the AUD”, they said.
The USD index has climbed by almost 2% over the last month with the probability of a December rate increase by the US Fed now close to fully priced in.
Longer-term though, the two analysts expected inflationary forces in the US to remain subdued.
As a by-product, monetary policy is likely to remain fairly supportive which is likely to limit moves in interest rates and by extension the USD.
While inflation remains low, the global economic picture remains positive with composite PMI data in September reaching its highest level since April 2015.
And the combination of steady growth and low inflation has given rise to a “Goldilocks” investing environment, increasing risk appetite and boosting stock valuations.
While Been and Specchia see the current levels of momentum as unsustainable, “we expect risk appetite to be well supported in the medium term by a combination of bullish momentum in global growth and ample macro liquidity”, they said.
Such conditions are positive for the Aussie, which is generally viewed as a “risk-on” currency and typically benefits from a more positive global growth backdrop.
And while the analysts expressed doubts around the pace of rate hikes in the US next year, ANZ is sticking to its forecast that the RBA will raise rates in 2018 despite a disappointing retail sales print for August.
“In our view, this will not derail the RBA’s slow progression towards a more hawkish stance,” the pair said.
In forming their view, Been and Specchia cited ANZ’s Bias Index — a predictive model based on analysis of the RBA’s statements accompanying its monthly interest rate announcement.
From a technical standpoint, the analysts said the AUD “lacks a clear bullish bias” against the US dollar but the charts suggest it should still find near-term support above US78 cents.
And despite a shocking month for iron ore in September which saw prices hit a three-month low, ANZ expects the commodities outlook to remain supportive for Australia’s terms of trade.
The analysts said the correlation between bulk commodities, metals and the AUD has been low, but recent data suggests it’s starting to strengthen.
While iron ore’s roller-coaster ride recently saw spot prices dip below $US60 a tonne from a February high above $US90, Been and Specchia said prices should stabilise around current levels.
“Given these five indicators, we think that any downside surprise in domestic data should be used as an opportunity to buy the AUD on dips.”
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