Further weakening commodity price developments and a rising probability of the RBA considering lower rates next year should keep the AUD a sell on rallies, for instance against the USD.
According to the latest data, labour market conditions improved, which should make a case of stabilising price developments. However, as most of the improvement was related to part-time jobs and as there is no indication of stabilising commodity price developments we expect inflation to still be subject to downside risk, regardless of the AUD’s last few weeks’ depreciation.
All of the above stands in contrast to the US, where improving growth conditions will continue to make a case of well supported Fed rate expectations.
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