AUD/USD: RBA’s cautious stance and growing covid challenge leaves the aussie on the back foot – Westpac

AUD/USD has stabilized above 0.7400 despite marginal fresh 2021 lows as the aussie is still finding support from elevated equities and resilient commodities. However, inadequate vaccination supply leaves the economy at mercy of further lockdowns and dovish Reserve Bank of Australia, as reported by Westpac.

Australia unemployment rate slipped to 10 year low of 4.9%

“Global risk appetite remains elevated, with US equities hovering near record highs despite ongoing Fed talk of QE tapering. Commodities too are very supportive: Westpac’s AU export commodity price index (WCFIAECI on Bloomberg) is at a record high, having surged about 40% since March.” 

“All eyes domestically are on COVID-19 outbreaks which are keeping Sydney in a multi-week lockdown and now also threaten VIC. The hit to Q3 GDP is growing though of course the assumption is that activity rebounds quickly once the outbreak is contained. Reinforcing the case for resilience was June unemployment dipping to a 10 year low of 4.9%.” 

“Still, the RBA’s QE taper looks very cautious in contrast to the RBNZ or even BoC, leaving A$ to underperform.”

“0.7400/25 might hold for a while but a break that opens up 0.7350 seems more likely than a sustained rally.”