AUD/USD: RBA Unlikely To Express More Concern About AUD Valuation Than Before – NAB

The Reserve Bank of Australia convenes for the first time in 2018 amid an upbeat jobs market but ongoing subdued inflation. The exchange rate has risen quite a bit since the last meeting in December. Will Phillip Lowe and co. try to talk it down?

Here is their view, courtesy of eFXnews:

NAB Research discusses AUD outlook into next week’s RBA policy meeting and thinks that the central bank may not express more concern about the currency valuation than what it highlighted before at December statement. “An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast”.

“Is the RBA likely to express discomfort at the recent AUD appreciation? From a valuation perspective we don’t think so…The global and domestic economic recovery are key offsets, tempering any ongoing RBA anxiety about the $A

Based on the model we think the RBA will remain alert to the currency’s deviation from equilibrium, but not more so than before, arguably less given improving fundamentals,” NAB argues.

A break above 0.8160/70 has the potential to open the door for the AUD to trade into a higher range….Of course we are not there yet, but a (sustained) break above this level without a material change in fundamentals would open the door for the RBA to explicitly express greater discomfort on the level of the currency,” NAB adds.

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