AUD/USD: Modest gains ahead but Delta COVID-19 risks need close monitoring – MUFG

During June the Australian dollar weakened against the US dollar from 0.7709 to 0.7497 as the aussie has underperformed recently even as risk sentiment has continued to improve. Looking ahead, the AUD/USD pair is set to appreciate mildly, according to economists at MUFG Bank.

RBA to confirm a more flexible QE program

“A key risk over the short-term is the evidence of increased COVID-19infections with the Delta variant becoming prevalent. The government describes the outbreak as a ‘very real and present danger’ that has prompted a tightening of restrictions in numerous cities with around 50% of the population impacted. While mindful of that risk the data from Australia is likely to continue confirming a strong rebound (assuming no prolonged COVID-19 disruption).” 

“Given global growth is set to remain buoyant next year we expect commodity prices to remain supported. Iron ore prices corrected lower in May but gained by 5.0% in June.” 

“The July RBA meeting will be important and we expect a modified, more flexible QE program to be confirmed that could allow for slowing purchases as the economy improves. That would be the most beneficial for AUD and support our view of modest, gradual appreciation.”