AUD/USD: RBA easing expectations remain a weight on the aussie – MUFG

Analysts at MUFG Bank, forecast the AUD/USD pair at 0.6900 (probable range 0.6600-0.7100) during the first quarter and at 0.7000 over the third quarter. 

Key Quotes:

“The Australian dollar weakened in 2019 with the continued decline in global trade volumes and global growth more generally undermining sentiment. The weak global backdrop was also evident in domestic data and that combination was the justification for RBA (Reserve Bank of Australia) monetary easing. We see scope for the RBA to ease further. The minutes from the RBA meeting in December revealed that policymakers wanted to reassess the stance once fresh economic forecasts are made available at the next policy meeting in February. The fact that the minutes contained this specific indication of reassessing the policy stance in February would suggest a leaning toward possible further action. The market is currently about 50% priced for one further rate cut by the middle of 2020 and we see it as likely that the RBA will deliver.”

“Q3 real GDP growth released in December was not particularly impressive – indeed, private sector demand contracted for the second consecutive quarter. A drop in residential construction and in business investment failed to be offset by consumer spending growth of just 0.1% Q/Q. Tax cuts and lower interest rates appear to have been saved rather than spent. The data suggests the RBA growth objectives could be falling short of already downwardly revised levels that will leave achieving its inflation goal more difficult. While the global backdrop may have improved somewhat, domestic fundamentals point to one further rate cut which will keep AUD capped in H1 2020 before strengthening modestly in the second half of this year.”