AUD/USD to remain resilient in the near-term – Westpac

AUD/USD remains resilient, rounding out the week just below 0.70, despite second wave virus concerns in the US and Australia – raising doubts about recovery momentum – and the ongoing breakdown in US-China relations, per Westpac.

Key quotes

“Apart from vaccine hopes, resilient commodity prices continue to cushion the aussie. Admittedly thermal coal prices are weak, but iron ore prices rose to $108/t this week, a 12-month high. Copper is probing multi-month highs, while gold is around $1800/ounce, a 12-year high. Oil prices remain stable around $40/bbl too, though OPEC’s decision to taper production cuts is a risk to watch. More importantly, China’s economy continues to rebound. Having been first to be hit by Covid-19, China’s economy has been first to attempt a V-shaped recovery. Headline GDP jumped 11.5% in Q2 after -10% in Q1, leaving the economy up 3.2% over Q2 2019.”

“By their own admission most central banks do not expect their labour markets to return to pre-Covid levels by end-2022, so further rounds of global monetary stimulus in the year ahead seem very likely, underpinning the supportive global liquidity backdrop and keeping interest rate differentials firmly in A$’s favour.”

“The US administration retains a very combative public tone toward China, but their actions are mostly political statements and at this stage President Trump is reportedly leaning against further China sanctions.”

“The overall impression then is that beyond the daily barrage of negative virus and US-China headlines the underlying picture for AUD remains positive. The global monetary policy backdrop along with ongoing resilient commodity prices point to an AUD that should hold its own near-term.”