AUDUSD reaches a new 3-month high above 0.77 as the risk-rally in FX continues. S&P has reached a new peak too at 2187. Our STEER model signals that global equities are the principal driver of AUD (rather than yields) which supports the link between the S&P 500 and AUDUSD.
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As the market is still underpricing the Fed for the upcoming September meeting we think AUDUSD (and equities) appears vulnerable above 0.77.
With the US data calendar quiet until Friday’s retail report and the Fed speakers calendar also in a summer lull, there has been little impetus for further adjustment in Fed expectations after last week’s release.
We think data and Fed communication in the weeks ahead will encourage an increase in pricing for a September hike and we remain constructive on the USD.