USD gains on revised Fed expectations have seen all of AUD/USD gains YTD unwound. The aussie has also fallen below its 200-day moving average and the near-term outlook is now for consolidation, in the view of economists at CIBC.
Consolidation after retreating on USD gains
“RBA rate hike expectations have, as in other markets, been brought forward, with the market pricing a hike by late 2022. That is at some odds to a still very accommodative stance by the central bank, and related messaging that rates will not be raised until 2024. Unless that is resolved in favour of hikes sooner rather than later, AUD/USD will remain under some pressure.”
“Fundamentally, the economy continues to perform solidly, employment in May was strong, and commodity demand is intact – especially of note on the back of infrastructure building plans across the globe. Commodity prices are off highs but are still strongly up overall. That supports terms-of-trade strength, with AUD still at a sharp discount to those.”
“Australian bonds are moving in lockstep with the US market and the previous yield pickup available over other major markets has largely been eroded.”
“Major support for AUD/USD is at 0.7400 and we envisage a possible test there before resuming a slow move higher.”