AUD: Domestic Vs External Drivers: Where To Target? – Barclays

The rise of the Australian dollar seemed to have reached its limit. What’s next?

Here is their view, courtesy of eFXnews:

Barclays Capital Research sees a broadly flat to mild downward trend in AUD/USD over the second half of the year, but expects the AUD to underperform other major currencies such as the NZD.

“Although improving domestic fundamentals and a less dovish RBA should provide support for the AUD, external factors are likely less favorable.

China’s plans to curb property speculation and informal sector credit growth, as well as its plans to rebalance the economy away from investment, could mean that any rebound in commodity prices is unlikely to be sustainable given excess production capacity.

Our commodity analysts forecast China-sensitive commodity prices will remain suppressed over the next year.

The Australia-US yield differential would likely continue to narrow in 2017, taking into consideration our forecast of one more Fed rate hike this year while the RBA remains on hold, although our expectation of RBA starting a hiking cycle in May 2018 could help provide some support for the AUDUSD next year,” Barclays argues.

Barclays targets AUD/USD at 0.75 through the second half of the year, and targets AUD/NZD at 1.04 by end of Q3, and at 1.03 by the end of 2017.

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