AUD/USD: COVID-19 risks to growth set to limit pro-cyclical potential – Credit Suisse

Slow vaccine rollout and ongoing policy resistance to market pressure instead leaves the Credit Suisse analyst team neutral on the aussie despite strong commodity prices.

RBA unlikely to move ahead of other central banks

“We are neutral, with a 0.7350-0.7730 AUD/USD target range (prev. 0.7415-0.7730). Australia’s draconian covid management creates an asymmetrically limited upside risk profile for AUD vs other G10 FX, despite undeniably strong local economic performance so far.”

“The still slow pace of vaccination and the zero tolerance approach towards covid infections suggests that Australia will remain exposed to the possibility of further lockdowns in Q3.”

“The recent stabilization in iron ore prices also suggests less potential for further improvements in the supportive balance of payments picture, if price increases do not not resume.”

“Wage growth and inflation remain well below target. As long as that remains the case, the RBA is likely to remain cautious, and markets will be unwilling to price in the possibility of a faster reduction in policy stimulus ahead and/or independently of the Fed. This puts AUD at a disadvantage compared to currencies where hawkish policy shifts are more actively discussed. This can change, but likely requires a clear shift in wage and CPI data.”