HSBS note that the ability to flex fiscal firepower and the green light from the central bank for the aussie rally are AUD bullish.
- We still see the AUD holding on to recent gains and possibly strengthening further next year
But inject a cautionary note:
- even if the currency remains sensitive to RORO over the near-term
More:
- AUD is likely to be in a period of consolidation
- prior resistance around 0.70 should turn into a key support level for AUD/USD
- path of COVID-19 continues to have little bearing on the AUD. One key factor is the significant fiscal firepower at the government's disposal to mitigate the economic impacts. In fact, the Australian government announced an extension of its wage subsidy programmes on 7 August.
- (RBA) has given the green light to the rally in the AUD. From August's minutes, the RBA noted that the AUD strength is broadly in line with its fundamentals, such as commodity prices and interest rate differentials. At the parliamentary testimony on 14 August, RBA Governor Lowe reiterated that negative rates in Australia were 'extraordinarily unlikely'. He also, once again, ruled out direct monetisation of government debt and FX intervention.
RBA Gov & the Treasurer:
