Westpac sees short-term upside for the Australian dollar

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Even before Tuesday’s RBA rate decision, the Australian dollar was looking bid. And now that there are doubts over whether the bank will reduce interest rates in the months ahead, it looks set to go even higher.

That’s the view of Westpac’s FX strategy team, consisting of Martina Song, Richard Franulovich, Rob Rennie and Sean Callow, who suggest that a number of factors that will converge in the days ahead and likely push the Aussie higher.

Here’s the basis for their call.

The RBA’s steady hand this week was no surprise but the lack of an overt easing bias was. Of course the statement does not preclude action as soon as our August base case but for now, optimism prevails, even with a repeat of the caveat about any potential AUD appreciation. AUD/USD was already looking more constructive given improved risk sentiment, a weaker USD in the wake of the May payrolls report which wiped out pricing for a June Fed hike, oil prices approaching $50/bbl and iron ore showing signs of stabilising around $50/tonne. A low key local calendar in coming days should also lend support to AUD/USD, with scope to probe 0.7480 resistance

Westpac are looking to buy AUD/USD at .7305, with a stop loss order at .7215. No upside target has been provided.

The AUD/USD currently buys .7457, unchanged from Tuesday’s closing level.

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