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AUSSIE: ANZ "continue to think that the big picture outlook for the AUD is a
negative one. First, it has no yield support and higher US rates, due to a
relentlessly hawkish Fed, will keep weighing on the currency. According to our
fair value model based exclusively on the rate spreads, the AUD should be
trading below USD0.70. Second, the commodity side, which used to be the bright
spot for the AUD, is rapidly deteriorating on the back of the trade war
narrative. And even though we expect some stabilisation on this front, that
won't likely be a panacea for the AUD. Third, we think tighter liquidity
conditions on the back of a hawkish Fed mean volatility is set to pick up and
global growth should slow towards trend by the end of this year. This is
important as growth is a key determinant of AUD performance, where a weaker
growth outlook is usually associated with a large probability of the AUD
falling. Finally, while China's new fiscal stimulus may help growth to stabilise
in H2 2018, further downside risks in the AUD may still be on the cards. We
continue to see the AUD falling to 0.70 by year end, with risks skewed to the