1. Developments surrounding the global risk outlook.
As a high-beta currency, AUD has benefited from the market's improving risk outlook over recent months as participants moved out of safe-havens and into riskier, higher-yielding assets. Also, as a pro-cyclical currency, the AUD enjoyed upside alongside other cyclical assets after moving into an early post-recession recovery phase with expectations of global synchronized recovery. Even though the risks remain surrounding the virus and thus global economic outlook, the success of the global vaccination roll out should prove supportive for the AUD.
2. The outlook for the RBA
The RBA continues to rule out NIRP, and with the Cash Rate at a record low of 0.10%, further reductions appear unlikely. Further easing remains a possibility through and the bank has stressed its commitment to purchase as many bonds as necessary to reach and maintain their 3-year yield curve control target of 0.10%. The possibility of macroprudential policies to try and curb a very hot housing market is a possible risk. Some changes in language at the bank’s June meeting has seen some market participants push back some of their dovish expectations for the bank and going into the July meeting it’ll be important to gauge this as a potential source of strength.
3. The country’s economic and health developments
Australia’s successful handling of the pandemic is one of the reasons why the economy was able to see a stronger economic recovery than initially expected. On the economic front, China’s recovery remains robust, and as Australia’s biggest export destination (39.1% of total exports) their demand for Australian has seen a surge in commodity prices, especially Iron Ore (Australia’s biggest commodity export). If the virus remains under control, and China’s recovery and demand for remains strong the outlook for the domestic economy remains positive. Even though Iron Ore prices is still elevated, China’s focus and further attempts to curb the rise in commodity prices is something we need to keep on the radar for the AUD.