AUD/USD: Headwinds now, tailwinds later – CIBC

FXStreet reports that AUD/USD has outperformed as the pair rebounded sharply off lows in mid-March, reaching above 0.70 earlier this month, but some consolidation has developed and Patrick Bennett from CIBC Capital Markets expects the aussie to trade around 0.6670 near-term.

“We expect consolidation to continue over the near-term with prospects for AUD/USD retesting the important break-out point of 0.6670.”

“With borders still closed or under heavy restrictions, and with the timing of re-opening uncertain, Australia risks losing very strong support via inbound tourism and via education of foreign students. China’s warning to students over studying in Australia referencing ‘discriminatory incidents’ was also concerning. Iron ore remains Australia’s top export, but by a number of estimates is also shaded by tourism, education and financial services. We don’t doubt that these sectors will recover, but a risk premium is warranted to reflect uncertainty for now.” 

“The tailwinds for the currency will come later as the recovery is confirmed and a clearer picture on China engagement is made. In addition, both fiscal and monetary stimulus will in time be a medium-term lift for local assets and the currency.” 

“The RBA’s stance on the aussie is noteworthy as the central bank has omitted any mention of it in recent statements. To us, that suggests comfort with present levels, confirmed by Governor Lowe who has said ‘I would like a lower currency at some point...but at the moment, I think it is really hard to argue the Australian dollar is overvalued.’ That aligns with our view of some consolidation in the short-term.”