AUD/USD likely to appreciate to 0.80 by end-2017, RBA to keep rates on hold through 2018 – Lloyds Bank

The Australian dollar had staged a solid recovery after falling to a four-month low below 0.7350 in early May, rallying about 3 percent against the U.S. dollar. The appreciation has been driven by a combination of resilient domestic data and a supportive external backdrop, noted Lloyds Bank in a research report.

The jobless rate in Australia dropped to 5.7 percent, retail sales for April exceeded expectations and inflation accelerated to 2.1 percent. During its June policy meeting, the Reserve Bank of Australia kept its benchmark interest rate on hole at 1.5 percent.

The central bank cited muted wage growth as an ongoing threat to household consumption and reiterated its worries over domestic house prices. Furthermore, with the core inflation still soft, there appears to be little reason for the RBA to hike rates. The market, in fact, expects policy rates to be on hold through the end of 2018.

On the contrary, the U.S. Fed continued with its tightening cycle in its latest FOMC meeting. Despiet the interest rate divergence, the Australian dollar is likely to be on a positive course, mainly because of the external environment. The Australian dollar is expected to be underpinned by the stabilization of important commodity prices, the easing concerns about weaker economic data in China and the upbeat risk environment.

“We see AUD/USD appreciating to 0.80 by the end of this year”, added Lloyds Bank.

At 23:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was highly bearish at -104.804, while the FxWirePro's Hourly Strength Index of Australian Dollar was neutral at 37.5633 . For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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