The AUD has been resilient despite this week’s sell off in risk assets. The currency’s strong correlation with risk aversion has been relatively low of late, which may be due to investors being short already. In addition somewhat more constructive growth conditions have been lowering the risk of the RBA turning more dovish anytime soon.
In that respect next week’s focus will be on January employment data. Even if conditions improved at a slower pace, it should have limited impact on rate expectations as the central bank had anticipated such a development already.
Elsewhere, it will be about conditions in China to drive external demand expectations. In particular trade and inflation data will be watched.
Overall we expect the AUD to remain a sell on rallies, as risk sentiment is unlikely to improve sustainably in the shortterm and as there is limited room of RBA monetary policy expectations stabilising further.
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