AUD - FUNDAMENTAL DRIVERS1. Developments surrounding the global risk outlook:
As a high-beta currency, AUD has benefited from the market's improving risk outlook over recent months as participants moved out of safe-havens and into riskier, higher-yielding assets. Also, as a pro-cyclical currency, the AUD enjoyed upside alongside other cyclical assets after moving into an early post-recession recovery phase with expectations of global synchronized recovery. Even though the risks remain surrounding the virus and thus global economic outlook, the success of the global vaccination roll out should prove supportive for the AUD.
2. The Monetary Policy outlook for the RBA:
The RBA continues to rule out NIRP, and with the Cash Rate at a record low of 0.10%, further reductions appear unlikely. Further easing remains a possibility through QE and the bank has stressed its commitment to purchase as many bonds as necessary to reach and maintain their 3-year yield curve control target of 0.10%. The possibility of macroprudential policies to try and curb a very hot housing market is a possible risk.
3. The country’s economic and health developments:
Australia’s successful handling of the pandemic is one of the reasons why the economy was able to see a stronger economic recovery than initially expected. On the economic front, China’s recovery remains robust, and as Australia’s biggest export destination (39.1% of total exports) their demand for Australian commodities has seen a surge in commodity prices, especially Iron (Australia’s biggest commodity export). As long as the virus remains under control, and China’s recovery and demand for commodities remains strong the outlook for the domestic economy remains positive.
