AUD/USD: We expect a move towards 0.68 on a 12 month view – Rabobank

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“The RBA took a balanced tone at its latest policy meeting. Policymakers maintained that “the (Australian) growth outlook is being supported by rising business investment and higher levels of spending on public infrastructure” and they forecast that the Australian economy will grow by around 3% this year,” notes Rabobank research team.

Key quotes

“Going forward a blow to job security is likely to limit the pace of pay increases and potentially jobs creation in the months ahead. Consequently, the news of the coal ban at the Dalian port has more than countered the market impact of the coincident release of the solid January jobs report.”

“A souring of confidence could also exacerbate the slowing in the Sydney and Melbourne housing markets. The January CoreLogic House price index recorded a drop of 1.2% m/m. Sydney prices had already dropped around 12% in 2018 and Melbourne prices by 9% according to the CoreLogic measure. High levels of household debt relative to income suggests that consumers’ sensitivity to a correction of house process is likely to be elevated.”

“Despite the balanced tone of the RBA in its early February meeting, Governor Lowe made clear in a subsequence speech that “there are scenarios where the next move in the cash rate is up and other scenarios where it is down.” In our view, the risks for a rate cut are building. We expect a move towards AUD/USD0.68 on a 12 month view.” 

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