The RBA is banking on the normalisation of US interest rates – that’s when the Fed starts raising them – as a catalyst for a weaker Aussie dollar.
Not so, according to Westpac’s head of strategy and research Rob Rennie, who wrote in a note Friday that “we argue that the A$ will continue to attract yield related demand that could support it even as the US$ inevitably starts to push higher.”
Rennie notes that while the US dollar may rise, there is evidence based on the forward estimates of a number of other markets which are influential on the Aussie dollar which suggest that when a “fair value” model is built and run, it allows for confidence intervals – both high and low – as estimates of Aussie dollar trading bands which suggest a resilient Aussie dollar.
Now the fact that there is a fair value band – and it’s a wide one – says that there is a chance the Aussie trades to the bottom of that range and be consistent with the model Rennie is using.
But Glenn Stevens won’t be pleased to hear that Rennie says that from where he sits, the bottom line is:
“It’s likely that the A$ will continue to be well supported against the US$ by yield related demand. We find it difficult to see much below 0.92 in the near term and are looking for opportunities to buy AUD on dips. This in turn implies further outperformance for AUD on crosses such as € (Euro) and £ (Pound).”
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