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In view of Greg Gibbs, Analyst at Amplifying Global FX Capital, one interesting development in AUD that has mixed implications for the currency is that short-term AUD funding costs have shot up, surpassing the well-documented rise in USD funding costs over US cash rate expectations.

Key Quotes

“On the negative side, this highlights the vulnerability of financial conditions in Australia to tightening global credit conditions.   On the other hand, it increases the carry return from holding AUD long positions.”

“Despite a cash rate target in Australia now 33bp below the Fed funds rate target, the 3mth carry return from a long AUD/USD position has returned to positive for the first time since February.”

“The presumption is that the higher AUD funding costs will ease back after the end of the Australian financial year end on 30-June.”