Goldman: Can’t Catch A Break

Goldman Sachs note that “the Australian Dollar has largely been trading with the broad U.S. Dollar in recent weeks, but there have been a couple of idiosyncratic developments worth noting. First, Q2 CPI inflation came in slightly below expectations. While inflation clearly remains elevated, the downside miss reduces the urgency for the RBA to accelerate the pace of rate hikes, leading our economists to revise down the rate hike forecast for August to +50bp (vs +75bp previously). Second, iron ore prices - Australia’s number one export - have also slumped to YTD lows, excluding the latest relief rally, and our commodity strategists are now expecting iron ore prices to fall to $85/t by the end of the year (a substantial downgrade from our previous $110/t forecast). Given our bearish forecast for iron ore prices, the bumpier cross asset backdrop, downside risks to China growth, and upside risks to the broad Dollar, we remain cautious on AUD vs USD over the near-term.”