AUD/USD: ‘Too High Too Soon’: Where To Target?
AUD/USD has reversed the move after US elections, which pushed the pair as low as below 0.72 around year end. The lack of details of the US administration’s economic plans has weighed on USD and supported AUD in January-February. Furthermore, improvement in Australian economic data together with a more optimistic tone from the central bank has helped AUD to return to pre-Trump levels. We recognise the support for AUD from improved global economic conditions and rising commodity prices. However, we still think the RBA wants to limit the upside in AUD and is ready to soften its tone in case the exchange rate appreciates excessively. Moreover, as the market could well price in more aggressive action by the Fed, we see relative monetary policies supporting USD versus AUD in coming months.We expect AUD/USD to back down from overbought levels over the next one-three months. We make a level shift to our forecast reflecting the latest moves but keep the profile unchanged, expecting short-term weakness and longer-term stabilisation in AUD. Our 1M forecast is 0.75, 3M forecast 0.73 and 6-12M forecasts 0.74 and 0.75, respectively