The Australian dollar trades right at 70-cents, what Westpac sees next
The Australian dollar is a standout performer to start the week, up 0.3% and trailing only the euro in G10 FX.
Analysts at Westpac are eyeing a modest trendline from early July.
Friday’s rebound off 0.6965 support and the 0.7000-handle touch keeps AUD’s low-key/low-vol July uptrend intact – it was increasingly looking fatigued after repeated failures > 0.7000 amid US-Iran escalation and new highs in US yields. Weekend news is mixed: de-escalation on the main US-Iran front (US strikes paused, the two sides confirmed as exchanging messages), but the second front in the Red Sea is still escalating. Net net: good for risk appetite and AUD that US-Iran seem to be tacking tentatively toward an off-ramp, but the Red Sea complicates it. Ahead of decisive event risk this week 0.6965 is still the key downside level and sustained time above 0.7000 likely remains elusive.
That’s not particularly upbeat but it’s a tricky week between the Fed and the war. They also focus on domestic risks.
Our defensive bias late last week is reset to “balanced" on the weekend’s tentative de-escalation, with this week’s data deciding which side of the range we gravitate to. The calendar is dense and potentially decisive: Bullock (Tue), Q2/Jun CPI (Wed), FOMC (Thu). A soft US Jun CPI gave the Fed breathing space, but that carries less weight after the oil move and fresh tariffs. Even on a hold, expect a thumping hawkish Warsh message and likely 2-3 hike dissents – no catalyst here for a dovish Fed repricing, though AUD should hold 0.6965 support. With 9bp of hike risk priced, an actual hike does serious AUD damage: a breakdown to the low-0.69s. Locally, a 1.0% qtrly trimmed mean converts a bunch of RBA Aug “on hold" calls; on-consensus leaves pricing unchanged; 0.8% cools Aug pricing back toward 5bp. AUD got what it “needed" last week – a 76k jobs surge – and even that couldn’t keep it above 0.7000. A strong CPI would do the trick.
They continue to see 0.7250-0.7300 in the second half of this year in part because of Australia’s deep reserves of commodities in a world looking ot secure them.
This article was written by Adam Button at investinglive.com.