AUD/USD: Improving trade sentiment supporting the aussie – CIBC

Analysts at CIBC, expect the AUD/USD pair to trade at 0.71 during the first quarter of next year and at 0.74 during the third quarter. 

Key Quotes: 

“The key driver of the AUD over the past month has been global trade sentiment, specifically pertaining to the USChina negotiations. The November RBA meeting was largely a non-event, with rates left unchanged. Growth and inflation forecasts were revised higher, supported by an outlook including lower rates, increased fiscal stimulus in the form of infrastructure spending, and tax cuts.”

“Consumer spending remains lacklustre, despite the recovery in housing prices since the start of the year. Wage growth also continues to pose a challenge, despite a relatively tight labour market. This will likely remain a key focal point for the RBA moving forward. The market is currently pricing in the possibility of a rate cut mid next year, but only with a 55% probability. Developments in the labour market concerning full employment and wages will likely swing central bank expectations.”

“With the market anticipating a ‘Phase One’ deal by the end of the year, we believe that sentiment will ultimately provide support for the AUD in the near-term. Still, we expect the currency to lag its peers, such as the NZD.”