Commodity price support remains very elevated but the Reserve Bank of Australia (RBA) might sound a note of caution. A strong USD and likely ongoing covid cases point to a slip towards 0.7400/25 on the AUD/USD pair, economists at Westpac report.
RBA statement and Governor Lowe remarks dominate the calendar
“The RBA itself has made sure that Tuesday’s meeting is one of the most significant of the post-pandemic years, by choosing July rather than August to make the decision on 3-year yield target and the $100bn QE program which concludes in September. Moreover, 90 minutes after the statement, Governor Lowe will deliver ‘remarks’ to elaborate on the decision.”
“Since the June meeting, the RBA’s changing tone and key events such as Australia’s booming May jobs data and the Fed’s step towards tapering QE have seen consensus solidify on no extension of the 0.1% bond target (i.e. 3 years is now 2yr 9mths and shrinking), plus an extension of QE but more likely a weekly pace that is easier to trim than a lumpy $100bn total. So A$ reaction to the decision is hard to judge.” “There is discussion of whether Australia’s current Covid clusters, notably in Sydney, could cause the RBA Board to lean to the dovish side, albeit just in rhetoric rather than policy settings.”
“Australia’s trade position remains extremely strong. This keeps our fair value estimate near 0.85, but near term a strong US$ and likely ongoing CoVID-19 cases point to a slip towards 0.7400/25.”
