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18.07.2019 10:21

Hard to see too much downside risk to AUD from interest rate differentials alones – Westpac

Robert Rennie, the head of FM strategy at Westpac, notes that, while today’s 21.1k rise in Australia’s full-time employment (2.9%yy) was better than expected, the 20.6k drop in par- time and 5.24% unemployment rate suggested a softer underlying tone in line with partial data suggesting that jobs momentum has slowed.

  • “It reinforces Westpac’s view that the RBA has further to go in terms of rate cuts if it has any chance of hitting the 4.5% NAIRU target any time soon.
  • However, with a third cut fully factored by Feb next year and 35% of a fourth cut to 0.50% after that, it's hard to see too much downside risk to the A$ from interest rate differentials alone. And with iron ore holding above $120 helping drive record trade surplus, the A$ should remain well supported for now.
  • Thus we again hold a neutral bias for the week ahead, though we still expect to see the A$ lower on a 1- and 3-month basis and see near term price action as capped by 0.7050.”

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