Westpac: Some Headwinds Set To Cap In Q1

Westpac note that "the Aussie has barely paused since bouncing off $0.70 in early November, with early January highs above $0.78 the strongest levels since March 2018. Rapid global equity gains following the US elections, optimism over Covid-19 vaccines, and resurgent iron ore prices (9-year highs) have all played a role. Since the US dollar typically underperforms in global economic upswings, dips in AUD/USD should be shallow. However, our end-Q1 forecast of $0.76 implies some headwinds capping the A$, including upward pressure on US Treasury yields following the Democrats' recapturing of Senate control, the RBA's aggressive A$100bn QE program (with potential for more), ongoing pain for Australia's tourism and education exports, and tensions with China which will hurt both investment and exports."