AUD/USD likely to trade around 0.78 by end-2018 – Lloyds Bank

Through January, the Australian dollar has rallied sharply against the U.S. dollar, underpinned by buoyant risk sentiment, noted Lloyds Bank. But having tested its range highs close to 0.8150, the recent sharp fall in equity prices has put the Australian dollar under pressure. In the short-term, there is a risk that the AUD weakness extends. Recent economic data have been disappointing.

The December jobless rate had surprisingly risen to 5.5 percent, while the fourth quarter consumer price inflation had come below 1.9 percent year-on-year. The market responded by lowering its projection of policy tightening from the Reserve Bank of Australia. This reaction appeared justified, as the central bank governor Lowe sent a clear message that the RBA is not under pressure to hike rates even if other policymakers are hiking.

On the contrary, the U.S. Fed has repeated its commitment to its “dotplot” implied course and is expected to hike the Fed funds rate by 75 basis points in 2018, noted Lloyds Bank.

“Given that market pricing on policy rates is approaching our view, aside from a further significant deterioration in risk appetite, we would not expect AUD/USD to break out of its 0.75 to 0.8150 medium-term range. We are forecasting 0.78 for end-2018”, added Lloyds Bank.

At 20:00 GMT the FxWirePro's Hourly Strength Index of Australian Dollar was neutral at 8.65476, while the FxWirePro's Hourly Strength Index of US Dollar was bullish at 83.2126. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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