TD Securities: The 4 key reasons why the Australian dollar is refusing to fall

Photo by Victor Fraile/Getty Images

Australian interest rates fell to a fresh record low last week, and markets expect that there’ll be at least one rate cut, maybe more, to come.

However, despite the backdrop of ever lower interest rate expectations, the Australian dollar simply doesn’t care.

It currently sits at .7635, lurking just below the highs struck in mid-July.

According to Annette Beacher, chief Asia Pacific macro strategist at TD Securities, based on the current market view for Australian interest rates — bottoming at 1.25% in early 2017 — the Australian dollar should be closer to 70 cents, rather than its present level.

However, as she rightly puts out, it’s not just interest rate expectations that drive movements, and the valuation, of the Aussie.

The reluctance of the US Federal Reserve to hike interest rates, the limited fallout generated by the UK Brexit referendum result, still-high Australian Commonwealth government bond yields, at least compared to other nations, and a build-up in speculative long Australian dollar positions have, in her opinion, helped to underpin the Aussie.

And, as the chart below reveals, the resurgent iron ore price has also played a role, she says.

Beacher suggests that the current spot price for benchmark 62% iron ore fines of around $US62 a tonne is consistent with the AUD/USD currently trading above 76 US cents.

“No wonder the AUD remains sticky at $US0.76,” she muses, adding “we see limited downside unless new RBA Governor Lowe finds fresh dovish tones next month.”

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