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AUD/USD trades near-weekly tops just above 0.7230 fueled by its positive correlation with equities. Furthermore, iron ore and gold prices also support the aussie. Nonetheless, rising Covid-19 cases and bleak economic outlook in Australia lead economists at Westpac to forecast AUD/USD at 0.71 by end-September.

Key quotes

“AUD’s rally to above 0.72 in early August coincided with the MSCI World index reaching highs since Feb, keeping the Aussie’s traditional positive correlation with risk appetite firmly intact. The Aussie’s support is broader than equities however, with commodity prices accelerating in recent weeks, especially iron ore and gold.”

“Westpac’s index of Australia’s commodity export prices is up 29% since late April, reinforcing Australia’s current account surplus. Australia’s renewed Covid-19 containment challenge is a potential brake on gains, however.”

“While the RBA does not favour either negative rates or FX intervention, the weakening domestic economic outlook could raise expectations that the RBA might take other steps to loosen policy to support the labour market, where unemployment is still rising.”

“Our end-Sep forecast is 0.71, though a soft USD should keep lending support at least in the run-up to the Sep FOMC meeting, so fresh highs since Jan 2019 remain within reach.”