AUD/USD likely to trade around 0.77 by end-2016 and 0.78 by end-2017

The AUD/USD currency pair is trading in a well-defined range, moving between 0.74 and 0.78, noted Lloyds Bank in a research report. Australia’s economic outlook continues to be comparatively positive. The nation continues to advance from a comparatively high yield relative to other developed economies, a stable political environment and a positive change in the commodity price cycle. These factors, when combined, make Australia an attractive destination for foreign inflows; however, Australia’s AAA credit rating might be at risk if the government’s fiscal position drops further, said Lloyds Bank.

Data that has been released recently has come out comparatively strong. Inflation data had come in more than expectations at 1.3 percent year-on-year, while the jobless rate stayed at 5.6 percent. Trade balance also improved, with deficit narrowing further to AUD 1.2 billion. In the meantime, the Reserve Bank of Australia maintained its key rates at 1.5 percent in October. Balance of risks is expected to stay on hold for the near future.

However, in spite of the uncertainty surrounding the economic impact of Donald Trump’s potential policy agenda, the likelihood of U.S. Fed tightening monetary policy has increased since he was announced as President-elect. The U.S. Fed is expected to hike rate by 25 basis points in December. Conflicting forces are expected to leave the AUD/USD currency pair restricted to a range.

“We forecast the pair to reach 0.77 by year-end and 0.78 by end-2017”, added Lloyds Bank.