Westpac: Aussie Likely Prone To Setbacks In Coming Weeks

Westpac note that "the Aussie probed $0.71 on 20 August, a low since November 2020. Since then, the U.S. dollar has been under pressure against commodity - and risk-sensitive currencies. It is no surprise to see A$ outperform the G10 in such a period but somewhat surprising that it has kept pace with the kiwi. This is despite markets pricing nearly 50bp of RBNZ hikes by year-end, in contrast to the RBA's projected 0.10% cash rate until 2024 and ongoing QE. The Aussie rebound is also despite Australia's Q3 GDP forecasts being slashed as the majority of the population remains in COVID lockdowns. One likely source of support is the conversion of historically immense mining dividends, A$18bn or more. There is also some optimism that by October/November, Australia's catch-up on vaccination should be starting to result in eased restrictions and thus scope for the economy to rebound. Still, the A$ is likely to be prone to setbacks in coming weeks, potentially as far as $0.7200/50. Our year-end target is $0.75."