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In light of this “turning point”, we have revised up our projections for the Australian dollar beyond the near term, from AUD/USD 0.73-0.78 to 0.77-0.80 on a 6m-12m horizon. We still see a “margin” for a modest possible weakening in the near term (AUD/USD 0.74-0.72 on a 1m-3m horizon), given the Fed’s ongoing rate hike path (three expected this year) and the existence of some persistent downside risks to the Australian economy. Indeed, while acknowledging a general improvement, the RBA notes that progress has not been widespread in some areas, and in some cases signals are in fact contradictory, most notably on the labour market front. This indicates that while the RBA believes the recovery to have begun, it will probably take time to spread and consolidate. And in this phase it is important that the exchange rate does not appreciate: as it also did in previous months, the central bank once again stressed that the depreciation of the AUD since 2013 has positively supported growth, and that an appreciation now would compromise the adjustment under way.

The assumption that the RBA’s cycle of rate cuts is over, promises a strengthening of the Australian dollar – beyond the near term – also against the euro.

The next RBA meeting will be held on 4 April, but focus will mostly be on the following one on 2 May, when the new SMP will be released, containing the updated growth and inflation scenario.

 

AUD – Australian Dollar, RBA, Currency Analysis, fx trader, forex fig-1AUD – Australian Dollar, RBA, Currency Analysis, fx trader, forex fig-2

AUD – Australian Dollar, RBA, Currency Analysis, fx trader, forex fig-3AUD – Australian Dollar, RBA, Currency Analysis, fx trader, forex fig-4

AUD – Australian Dollar, RBA, Currency Analysis, fx trader, forex fig-5AUD – Australian Dollar, RBA, Currency Analysis, fx trader, forex fig-6

Source: Thomson Reuters-Datastream

 

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