HSBS notes that the ability to flex fiscal firepower and the central bank’s green light for the Australian rally are bullish for the AUD.
- We still see the AUD holding onto its recent gains and possibly strengthening further next year
But inject a caveat:
- even if the currency remains sensitive to the RORO in the short term
- AUD is probably in a period of consolidation
- earlier resistance around 0.70 should turn into a key support level for AUD / USD
- The trajectory of COVID-19 continues to have little impact on the AUD. A key factor is the significant budgetary power available to the government to mitigate the economic impacts. In fact, the Australian government announced an extension of its wage subsidy programs on August 7.
- (RBA) gave the green light to the AUD rally. Since the August minutes, the RBA has noted that the strength of the AUD is broadly in line with its fundamentals, such as commodity prices and interest rate spreads. In parliamentary testimony on August 14, RBA Governor Lowe reiterated that negative rates in Australia were “extraordinarily unlikely”. He also, once again, ruled out direct monetization of public debt and foreign exchange intervention.
RBA Gov and the Treasurer: