AUD: Further downside likely – Westpac

Sean Callow, analyst at Westpac, suggests that further downside seems likely in the week ahead for the AUD, if only because markets are not fully priced for the RBA to cut the cash rate to 0.75% on Tuesday.

Key Quotes

“Westpac has been calling for an Oct rate cut since late July and the focus on slack in the labour market in Governor Lowe’s speech leaves us quite comfortable with that call.”

“Along with the rate cut, we expect the statement to leave the door open for further easing. Our base case is for a Feb 2020 cut but rates markets are likely to nudge up the risk of a Dec move.”

“A firm US dollar should be another headwind near term, backed by decent US data and hopeful Fed officials. In contrast, Asian export and activity data is worrying, dovetailing with e.g. spot iron ore’s fall below $90/tonne.”

“Limiting the downside however is the underlying market hope that the US and China will be able to reach perhaps an interim agreement mid-Oct, a la US-Japan. Risks to AUD/USD 0.6700 and below on the week but not necessarily on a daily close basis.”