AUD: Resilient performance – Westpac

Sean Callow, analyst at Westpac, suggests that the half cent fall in AUD/USD over the week is quite a resilient performance considering the past week has included global markets being shaken by a collapse in a key US manufacturing survey to a 10 year low, the S&P 500 kicking off Q4 by sliding to 5 week lows and of course the RBA rate cut.

Key Quotes

“To be sure, the fall has produced a fresh low (0.6671) since March 2009. And while the A$ TWI is slightly above early August lows, the RBA should be content that its decision to cut the cash rate to 0.75% and reiterate that it “is prepared to ease monetary policy further if needed” will ensure the Aussie doesn’t see any of the “unhelpful” appreciation we discussed last week.”

“The RBA Board statement and subsequent speech by Governor Lowe should keep markets leaning firmly towards further easing. But whether AUD suffers any renewed pressure on this front near term is debatable. Pricing for a 5 November rate cut to 0.50% is an awkward 45-50% and may well remain finely balanced at least until we have some clarity on USChina trade talks, which look to be set for 10-11 October.”

“Short term, AUD also has limited guidance from China, with mainland markets closed until Tuesday. AUD/USD price action suggests it could hold its ground around 0.6700 into the trade talks. The fall in US yield support also limits the downside on the pair, with January 2020 Fed funds implied yields -11bp on the week to 1.49%, a 4 week yield low.”