Australia: Positive domestic narrative – Westpac

The steep rise in Australian employment in Aug reinforced the mostly positive domestic narrative, with business conditions reported as very strong and an RBA rate hike fully priced for a year from now, according to Sean Callow, Research Analyst at Westpac.

Key Quotes

“Commodity prices remain broadly supportive though their rise since the June lows has not matched the scale of AUD/USD gains. As the chart shows, commodity prices and yield differentials have boosted our AUD/USD fair value estimate by almost 5% since June but its actual gain has been above 8%.”

“Combined with spec positioning still very long AUD, this seems to leave AUD/USD vulnerable whenever the US dollar makes broad-based gains. If the rare bipartisan co-operation at the White House continues, then a firmer USD could trim AUD/USD to around 0.79.”

“But AUD losses should be limited so long as risk appetite is positive e.g. MSCI World hit a record high this week.”