AUD: Upside should be capped - Westpac

Sean Callow, analyst at Westpac, points out that the AUD/USD pair popped up to 0.7090 initially after the RBA meeting today, presumably on the steady hand and headlines that did not include anything supportive of the dovish view (speculative funds appear to be modestly short AUD).

Key Quotes

“The unchanged policy summary paragraph and familiar forecasts of 3% GDP growth and 4.75% unemployment rate implied that a rate cut is not on the agenda any time soon.”

“The RBA also used identical language to describe the exchange rate: “The Australian dollar has remained within the narrow range of recent times.” This is despite AUD TWI sitting very close to post-GFC lows in month-end terms. This implies contentment with the soft AUD - not very surprising in light of below-target inflation and export volumes rising a strong 4.7%yr in Q4.”

“AUD/USD is in the lower half of the Westpac Markets fair value model range, with a midpoint around 0.73 and a range of roughly 0.70-0.76. AUD’s commodity price support implies that it should be trading higher and near term, we expect dips to the 0.7050/60 area to continue to draw buyers, as has been the case for the past month. But upside should be capped around 0.7100/20 into the potentially pivotal Australia Q4 GDP data on Wednesday.”