Bank of America Merrill Lynch FX Strategy Research argues that the sharp rally in AUD is unlikely to elicit much concern from the RBA yet.
“So if the RBA does not stand in the way of AUD appreciation, what will? In the near term, not much; domestic data surprises are positive but not extreme, the external backdrop – particularly China import demand – has remained stronger for longer, and positioning metrics are not stretched.
The resilience of the reflation trade driven by China and little valuation pressure suggest AUD/USD will remain close to current levels over the near term.
We reiterate that any AUD depreciation will be less volatile than previously, reflected in the low absolute level of its risk-reversal vs. the USD,” BofAML argues.
In terms of targets, BofAML has revised up its AUD/USD forecasts but keeps a weaker end-2017 projection of 0.74 reflecting its stronger USD outlook as well as in anticipation of an eventual slowdown in China demand.
Source: Bank of America Merrill Lynch Rates and Currencies Research
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