AUD: Appreciation delayed slightly - CIBC

Analysts at CIBC, forecast that the AUD/USD pair will trade at 0.74 during the fourth quarter and at 0.76 in Q2 2019. 

Key Quotes: 

“Investors can be forgiven if they’re confused as to why the Aussie continues to weaken. After all, Q2 GDP came in at a very respectable 0.9% q/q pace – good enough to take the annualized rate to 3.4%. That’s above market expectations but in-line with the RBA’s own forecast for 3%+ growth in both 2018 and 2019. Private capital expenditures have been the key driver of growth over the past year, allaying fears following the collapse in mining investment earlier this decade.”

“the key to AUD weakness has been the rise in offshore funding costs borne by domestic banks. Indeed, cross currency basis swaps have widened out considerably since the start of the year. That has led to a few lenders to increase mortgage rates despite no move from the central bank that continues to be concerned with the level of household consumption given high household debt levels.”

“There is reason to be optimistic for the AUD. Despite mortgage rate hikes from domestic lenders, the RBA has pointed out that the average mortgage rate is still lower than it was a year ago. Additionally, the Bank has pointed out that there are signs that wages have troughed and risks are now to the upside. In light of recent downside, we’re revising our AUD forecast to show a slower climb, but the profile should still reflect an appreciating AUD as the RBA is likely to increase rates starting in Q3 2019.