AUD/USD: Momentum starting to build towards 0.68 level - Westpac

Analysts at Westpac suggest that in the last week or so that momentum has started to build towards their 0.68 year-end target for the AUD/USD pair.

Key Quotes

“The sharp deterioration in trade relations between the US and China in the second week of May that saw Trump raise tariffs on $200bn of imports from China from 10 to 25% and order his trade representative, Robert Lighthizer, to start work on raising tariffs on all remaining imports was one factor pushing the A$ below 0.70.”

“However, the other was RBA guidance on the Australian economy. A week ago, the RBA cuts its forecasts for growth and inflation to barely acceptable levels despite making the technical assumption of two rate cuts in its forecasts.”

“Clearly then, it would not have been pleased to see the unemployment rate in Australia pop up to 5.2%, though there may have been some comfort in another month of robust job creation, with a headline 28k boosting annual jobs growth to 2.6%, and  full-time jobs up 2.9%yr.”

“On Tuesday we see the minutes from the May RBA policy meeting but the key for AUD should be 45 minutes later when RBA Governor Lowe speaks on the “Economic Outlook and Monetary Policy.” Traders will be watching this speech for any guidance on how quickly rates will be cut, with money markets fully pricing a move by July and 80% for June.”

“The Australian dollar has fallen 2.2% so far this month and is the worst performing G10 currency over that period. However, it’s not been all bad news for the A$ outlook.”

“The ratcheting up of tariffs on Chinese goods, the retaliatory tariff increases by China and this action on the Huawei have materially hardened the dialogue between the two superpowers. Consequently risk and growth sentiment are likely to be suppressed in the near term. This is a weight on AUD/USD though whether the pair tests the 0.6800 area probably depends more on what Governor Lowe has to say.”