Westpac: Resilient Lately But Headwinds Strengthening

Westpac note that “A$ outperformance continued in recent days, the Aussie strongest in the G10 over the past week and indeed since the eve of the Russian invasion (23 Feb close), up 1.0%, printing highs since November 2021.”

• “The scale of the surge in commodity prices is stunning, including Australian export staples LNG, coal, wheat, iron ore and aluminium. It comes after Australia recorded an 8% jump in exports in January, producing the second-largest surplus on record, A$12.9bn.”
• “Still, the global growth outlook is cooling, typically a clear negative for the Aussie, with the energy price surge acting as a tax on growth in major economies. An overhang of speculative short positions (at least on CME) and Australia’s current account surpluses help explain some of the currency’s resilience.”
• “But AUD/USD should find resistance around the 200-day moving average (currently $0.7324). The RBA did not do the Aussie any favours this week with its wary statement accompanying maintenance of the cash rate at 0.10%. With Fed Chair Powell reaffirming the first of likely many rate hikes is set to be delivered this month, we expect yield spreads to help keep a lid on AUD/USD in the week ahead.”
• “Multi-week/month, AUD/USD should struggle against the headwinds of the Fed hiking at the next 3 meetings and risk appetite undermined by inflation rates yet to peak. We expect conditions to be more favourable for the Aussie in H2, so any retracement to say the $0.71 region multi-week should appeal for those looking to buy dips.”