NAB: No rate cut in May means a higher Aussie dollar


Interest rates always matter in forex markets. But with super-low rates and quantitative easing, interest rate differentials have probably never been more important to the value of currencies at the moment.

So yesterday’s announcement by the NAB’s economics and global markets research team that they believe the the RBA will not cut increase rates at its next board meeting on May 5 comes with a necessary revision to the Aussie dollar forecast.

That means the NAB is now expecting the Aussie dollar to hit 78 cents and hold there to end the June quarter around current levels. That’s up from the previous forecast of 75 cents.

NAB FX strategist Emma Lawson and Ray Attrill wrote in a note that:

Near term, if there is a delay in the interest rate cut we should see some partial support for the AUD. Combined with a market that is already very short the AUD (Chart 2), there is a case for raising our Q2 forecast to 0.78 from 0.75; without ruling out a spike to 0.80 around the RBA meeting in May when they fail to provide a rate cut that is presently partially priced in.

We also move our Q3 2015 forecast to 0.76 from 0.74, as the catalyst for a sharp AUD decline from a higher base is not expected; absent any significant exogenous shock.

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