AUD head towards sub 0.7800 - Westpac

The A$ has underperformed over the last week, down 1.8% versus the US$ and at 6 month lows versus the NZ$, points out Robert Rennie, Research Analyst at Westpac.

Key Quotes

“The potent combination of further deterioration in yield spreads (AU-US 10yr spread now firmly in negative territory), limited support from commodity prices, increased focus on political risks and a crystal RBA clear message that “progress in reducing unemployment and having inflation return to target … is likely to be gradual” has seen the A$ head towards the 200dma sub 0.7800.”

“Our fair value framework has continued to argue that the A$ has been “expensive” for the last 4 weeks and thus at risk of weaker price action.”

“Outside of a sharp weakening in the US$ near term, it’s hard to see what will turn the A$ around next week.”