Westpac have updated their Australian dollar outlook, in brief:
- The Russia-driven supply squeeze should keep a floor under energy prices, strengthening Australia’s already large trade surpluses.
- But Aussie rallies should be capped against a US dollar backed by the Fed’s determination to remain aggressive on rate hikes until there is compelling evidence of core inflation rolling over.
- With global risk appetite fragile and recalibrating Fed expectations whilst markets are reluctant to price in a sharp recovery in Chinese growth just yet, the A$ in coming weeks seems likely to retest the July lows sub-0.67.
- Into Q4, scope for 0.71 as markets price a tapering in Fed tightening pace.
