Westpac: Pullbacks In Jun Wouldn’t Surprise Before Move Higher Later In ‘22

Westpac note that the “economic ripples from Russia’s invasion of Ukraine continue to underpin energy prices, strengthening the outlook for Australia’s already large trade surpluses. But the Aussie remains at risk against a U.S. dollar backed by the Fed’s determination to frontload rate hikes and shrink its balance sheet, a notably more aggressive tightening stance than the RBA (at least for now). Equity markets have helped AUD/USD recently but are hardly on a firm footing, so pullbacks to around $0.70 or below during June would not surprise. However, a recovery to $0.74 or higher in Q3 remains likely. Australian growth should be swift in Q2 and Q3, supporting pricing for RBA tightening, while China’s policy focus will once again to infrastructure-led growth.”