AUD: Flying too High? – Westpac
Robert Rennie, Research Analyst at Westpac, suggests that after rising about 5% against the US dollar over the past month, the Aussie will surely be a hotter topic at the RBA Board’s meeting on Tuesday than it has been for quite some time.
“Has AUD/USD finally broken out of the familiar 0.70/0.74 range to a new higher plane? Is AUD no longer “adjusting to the evolving economic outlook”?
I posed this question to RBA governor Stevens last week at the ASIC forum. The answer he gave was - “Unless you think that the commodity price trend now is different and we are heading back to a world of considerably higher prices for an extended period, and you think the Fed is never going to lift rates, it is not clear that that situation will warrant a much higher exchange rate than this and there is some risk actually that the currency might be getting a bit ahead of itself”.
So is the Australian commodity price trend different? The Westpac Australian Export Commodity Futures Index currently sits close to 1 year highs with iron ore being a key part of this story. However, I am not sure that this is a change in trend. As shown in charts in this publication in recent weeks, there are signs of both unsustainable speculation in iron ore futures in China and also the potential for increased iron ore supply from other producers given the recent bounce in prices.”
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