AUD/USD: Underlying USD strength should help cap rallies - Westpac

Sean Callow, Research Analyst at Westpac, explains that after barely threatening to break out of its 0.73-0.75 prison for about 8 weeks, AUD/USD finally broke lower last Friday as European markets quaked at reports that the ECB was worried about contagion from Turkey to the Eurozone banking system.

Key Quotes

 “The correlation between movements in global equities and AUD/USD has tightened this year. This could be partly due to the lack of debate over the RBA outlook, which continued this week – wages, business & consumer confidence and unemployment data had little impact on AUD.”

“Indeed even the AUD/USD bounce following the July unemployment data looked to be driven by a rebound in CNY. Near term, underlying USD strength should help cap rallies in the low-0.73s, with overall risks this month of a probe towards 0.7160 (Dec ‘16 low).”