Catching up on this snippet from Westpac earlier in the week on the Australian dollar
- The economic ripples from Russia’s invasion of Ukraine continue to underpin energy prices, strengthening the outlook for Australia’s already large trade surpluses. But the Aussie remains at risk against a US dollar backed by the Fed’s determination to frontload rate hikes and shrink its balance sheet, a notably more aggressive tightening stance than the RBA (at least for now).
- Daily correlations with equity markets are elevated even by the Aussie’s historical standards, so any renewed equity turbulence could see a return to trade with the 0.68 handle (along with occasional squeezes higher).
- Recovery to 0.74 in Q3 remains likely.
- Australian growth should be swift in Q2 and Q3, supporting pricing for RBA tightening, while China’s policy focus will once again turn to infrastructure-led growth. And at some point, USD yield support will reach the cyclical peak.
AUD/USD update (daily candles:
