AUD/USD to break below 0.70 ahead of US election – Westpac

AUD/USD has slided back to around 0.7050. Nerves are understandable ahead of next week’s massive risk events – Reserve Bank of Australia (RBA) and US election results on consecutive days. RBA easing steps should be priced but surely cap A$ rallies while further equity turbulence is likely into and in the wake of US Election Day but the aussie has potential to rebound on a Blue Wave outcome, per Westpac.

Key quotes

“For all the polling, there is plenty of scope for the US election to surprise and produce turbulence, with AUD probably the top risk proxy in the G10. So volatility seems assured even if we do get the market-preferred Blue Wave that would brighten the prospects for US fiscal support both short and medium-term. Such a prospect is one of the assumptions in our 0.75 year-end forecast.” 

“Q3 CPI was firmer than we expected but with the RBA placing greater emphasis on actual inflation, we are a long way from the 2-3%yr target – see across. The RBA’s rate cuts to 0.1% cash and 3 year are expected but uncertainty lingers over the shape of a new QE program.”

“Overall, we see risks of a break of 0.7000/10 support pre-election but scope for a sharp rebound if equities recover.”