Noting an updated outlook for the Australian dollar from Westpac.
WPAC say the near term risks are for a test of 0.70 if the US$ remains solid.
- While the US dollar has been broadly strong, AUD is weakest in the G10.
- A$ underperformance is to be expected when risk aversion picks up, but Australia's Covid lockdowns have also weighed, with Q3 GDP likely to show a steep contraction. The $80 tumble in iron ore prices in just a month has not helped, a reminder that a less robust trade position lies ahead.
But by late Q3 and early Q4
- the Aussie should be finding support from the conversion of historically immense mining dividends, A$18bn or more.
- Moreover, by October Australia's catch-up on vaccination should be starting to result in eased restrictions and thus scope for the economy to rebound.
- The A$ should recover to around 0.75 at this stage, with our year-end target still 0.78.
