The Australian economy remains an outperformer in the G10 as it
continues a successful transition away from a commodity-driven
investment boom towards more consumption, exports and services-oriented
growth. Indeed, Australia is experiencing the dividends from its
previous half-decade of mining investment with net exports becoming a
dependable contributor to growth. Also, despite the ramping up of global
supply of iron ore and the fall in its price, iron ore prices remain
well above the breakeven rates of Australia’s biggest producers.
Australia’s economic outperformance is leading to capital inflows,
which are supporting the currency. Investors are buying companies,
infrastructure assets, commercial and residential real estate as well as
long-end government bonds. Foreign direct investment into Australia is
close to mining-boom highs, and Australia’s basic balance-of-payments
balance is less of a drag on the currency.
RBA rate cuts are not likely to deter this investment, rather they
would make the returns on many of these assets more appealing by
boosting Australia’s already strong growth and providing temporary dips
in the currency to buy into.
sustained move by AUD/USD to 0.80 would likely generate another RBA
rate cut, but we think that such a move is unlikely at this time. In
the coming three months, we think that investors should buy dips in
AUD/USD towards 0.74 and sell the exchange rate around 0.78. Above the latter level the market would begin to price in another RBA rate cut.
AUD/USD today’s Exchange Rate is 0.7435.
AUD/USD is going down and is recommended to sell.
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