The case for an interest rate cut by the Reserve Bank of Australia will be “indisputable” by August, Westpac said on Monday, but despite economic pessimism, the Australian dollar refuses to weaken below US70¢.
The benchmark Australian dollar exchange rate, AUD/USD, continues to push away from the 70¢ level (at 70.6¢ on Monday), just as it did in the first half of March.
70¢ now represents significant support to the Aussie and its unwillingness to crack is confounding analysts who continue to present pessimistic forecasts for the Australian economy based on disappointing data, which should be driving currency weakness.
One Australian bank that has been downbeat on the domestic economy for some time, Westpac, again asserted its bearishness on Monday when it wrote that “the case for a rate cut would be indisputable” by August based on below-target inflation, reduced growth expectations and an “explicit easing bias”—the latter to be heard loud and clear at the RBA’s May-7 meeting, Westpac expects.
Westpac currently forecasts two RBA cuts this year (one in August and one in November), though it sees a May-7 hike, which market pricing suggests is a 50/50 shot, as too early.
Westpac had previously predicted AUD/USD at 68¢ by year-end, 3 percent higher than HSBC’s forecast of 66¢.
With 95 percent of price action below 73¢ since September, hopes aren’t high for a near-term AUD/USD rally worth more than a few percentage points; however, the Aussie’s resilience at current levels against a strong US dollar bodes well for other AUD exchange rates, several of which have made gains in April.
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