Westpac with a 'where to'? for the Australian dollar following the Reserve Bank of Australia policy announcement

  • RBA maintained its view that AUD "is adjusting to the significant declines in key commodity prices", despite the past month's combination of 1 month highs on AUD TWI and new lows on key commodity prices
  • This indicates a tolerance for AUD strength, at least ahead of the FOMC decision this month where the RBA is likely to be hoping that a Fed rate hike knocks AUD/USD into lower ranges.

AUD - where to from here?

  • Until then however, there may be some more upside for AUD/USD
  • All G10 currencies are up against USD today, an indication of unease in long USD positions despite resilient US yields
  • Net equity inflow to Australia appears to be adding to AUD/USD demand despite the ongoing pressure on commodity prices
  • So long as dips remain reasonably shallow near term, short-covering could extend towards the 12 October highs around 0.7380
  • However, as the RBA notes, commodity prices are still the main game for AUD and continue to point firmly lower multi-week/month, back to AUD/USD0.70 and below