Westpac note that “for some weeks after Russia’s invasion of Ukraine, A$ was easily the strongest currency in the G10, boosted by the extraordinary surge in energy and metals prices which is strengthening Australia’s already large trade surpluses. The Aussie is still a clear outperformer in the G10 over that time but is somewhat fragile against a U.S. dollar bolstered by the Fed’s accelerated tightening cycle. Turbulent equity markets are also keeping a lid on A$, so near-term trade below $0.70 is plausible. Multi-week/month however, a recovery to $0.74 and then higher remains likely. The RBA’s scramble to deal with surging inflation pressures has driven a sharp movement in the 2-Year AU-U.S. yield spread in favour of the Aussie. Moreover, investor concerns over China’s current lockdowns in some cities should ease over time as China’s policy focus turns once again to infrastructure-led growth.”
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