EN:Australian dollar exchange rate: Is the recent rally about to run out of steam?
The Australian dollar exchange rate has made some strong advances against the US dollar, the British pound and the euro over the course of the past week.
Indeed, the AUD USD exchange rate has moved up by some 8% from 0.95 to above parity. It now sits at 1.0153.
In a note to clients today Barclays Capital say that they recent risk-on rally that has driven the Australian dollar may run out of steam.
"Economic fundamentals would be critical for the medium-term prospects of AUD, in our view, and we have a series of key data releases from Australia and China in the coming week. In particular, the market will look into whether Australian employment data could confirm the recent upward momentum in Australian economic data," say Barclays Capital.
(At time of writing the jobs data has been released and come in above consensus - pushing the Australian dollar higher).
Barclays go on to say:
"Note that the RBA started to cut rates in the past, following a sustained period of downward activity data. Our economists expect the economy to remain resilient with the unemployment rate consistent with full employment, and maintain a view that the RBA would hike 25bp in Q1 12, in contrast to the current market pricing of 100bp cut by February 2012. If our economists' expectations materialize, we expect strong support for the AUD in the medium term. The Chinese economic outlook also matters for AUD, and we do not expect large surprises from Chinese economic data this week, likely little impact to AUD.
"Overall, we continue to see downside risk in AUD in the near term, given the elevated level of uncertainty, especially in Europe, but remain constructive in the medium/longer term on the back of strong economic fundamentals for Australia and our baseline scenario that China could avoid a hard-landing of its economy. In the medium term, we believe there is upside in AUD/SEK justified by uncertainty in Europe and robust regional economic outlook in Asia, combined with strong domestic fundamentals for the AUD (please see the latest FX Quarterly, theme growth and inflation, for more detailed discussion of this trade)."
