AUD/USD: Shifting focus to domestic fundamentals – CIBC

Analysts at CIBC forecast the AUD/USD pair will trade at 0.72 during the second quarter and at 0.76 during the fourth. With the Reserve Bank of Australia prepared to ease, upside for the Australian dollar appears limited in the near-term, despite completion of the Phase One trade deal, they explained. 

Key Quotes: 

“The RBA is committed to keeping rates low for as long as necessary to generate household spending. Part and parcel of their thesis is that wages have bottomed out, and should start rising over the medium-term. However, economic activity remains subdued, which should keep inflation risks at bay. As a result, the market continues to price in another rate cut by mid-year.”

“The effects of the bushfires also means that the domestic economy likely contracted in Q4, as a result of disruptions to ports and retail spending. That should also work against the AUD in the near-term, even as the macro backdrop improves, with the US-China Phase One agreement.”