AUD at behest of DXY – Westpac

Analysts at Westpac note that since the beginning of 2017, the AUD has risen from USD0.72 to USD0.80 (11%) and suggests that commodity prices; growing expectations of an RBA rate hike within 12 months; and booming employment have typically been recognised as the causes.

Key Quotes

“In reality, the dominant factor has been the USD’s fall, driven by a material loss of confidence in President Trump’s administration and a string of soft inflation prints.”

“Against the AUD/USD’s bilateral appreciation of 11% since 3 January, the RBA’s TWI has risen less than 5%. Further, if we exclude the USD (and currencies pegged to it), the gain is just 3.5%. On both metrics, it is evident that the USD story has been responsible for the majority of 2017’s AUD move.”

“The road ahead for fiscal policy will prove particularly taxing, but there is still reason to expect the market will become more positive on the prospects for reform. We also remain of the view that the FOMC will hike in December and twice more in 2018, seeing the Australia/US rate differential turn negative. DXY is expected to rise 5% by end-2018.”