AUD/USD: Retracement in US yields provides scope for further gains – MUFG

The Australian dollar, like all G10 currencies, gained versus the US dollar in April as the AUD/USD pair rose from 0.7610 to 0.7706. AUD outlook remains positive as higher commodity prices continue to favour a stronger aussie, economists at MUFG Bank report. 

Improving terms of trade

“While the RBA at its meeting was strongly committed to maintaining the current monetary stance according to minutes from the meeting, there remains a sense that the RBA’s stance will inevitably shift ahead of the Fed’s.” 

“The minutes acknowledged the benefits of its stance on ‘contributing to a lower exchange rate than otherwise’ and we see the RBA as content with slowing AUD gains. With the highest 10-year yield on offer in the G10, it will be difficult to completely avoid currency appreciation.” 

“Iron ore prices increased by nearly 20% in April and are up 159% from a year ago levels. With Asia leading the way with booming annual growth confirmed in China, Australia is well placed to benefit from a terms of trade perspective.” 

“Consumer Confidence, the employment data and retail sales were all stronger than expected, which will help sustain a positive outlook and provide support for AUD.”

“Assuming there is no repetition of the dramatic jump in US yields in Q1, we continue to expect AUD/USD to grind slowly higher.”