AUD/USD: Short-term reprieve masks weak underlying dynamics – ING

Although iron ore prices continue to decline, the AUD$ has stayed buoyed by the combo of falling UST 10-year yields and a mild riskon market explains Viraj Patel, Research Analyst at ING .

Key Quotes

“The local economy is the epitome of ‘secular lowflation’ – the absence of any price pressures could reaffirm a dovish RBA.”

“With the local story failing to provide much support, we believe the near-term risks stemming from the external environment could see further AUD pain. Investors are contemplating two Trump worlds: a revival of US reflation hopes or more tough talk on trade policy. Both will be negative for the rate- and risk-sensitive AUD; short AUD$ may be a good way to hedge for White House policy risks.”

“Either higher US yields or risks of trade-stifling global protectionist policies will exert bearish pressure on AUD/USD in 3Q17. Look for downside risks to 0.73, with a rebound to 0.80 delayed till 1Q18.”