COMMENT-AUD a buy on dips as multiple factors buoy outlook

The Australian dollar looks poised to outperform its peers as diverging central bank interest rate expectations, surging prices for base and precious metals and carry-trade demand work in its favour.

The Aussie is hovering near highs traded in early January versus the U.S. dollar, euro and sterling after Reserve Bank of Australia Governor Michele Bullock's warning of inflation risks and the government's fiscally expansionary budget forced investors to push back rate-cut expectations.

A quarter-point RBA rate cut is close to fully priced only in April 2025 - much later than other major central banks. Interest rate futures imply a 73% chance of a U.S. Federal Reserve rate cut by September, while a Bank of England cut is almost priced in for August, and the European central bank has all but promised a cut on June 6.

The minutes of the RBA's May policy meeting on Tuesday are also likely to reaffirm its higher-for-longer rate stance and provide a boost for the AUD.

Surging prices for commodities, particularly copper, iron ore, gold and silver, and rising optimism on China's growth outlook are clearly AUD-positive.

The Aussie will also find underlying support from purchases versus the Japanese yen as the yawning Australia-Japan yield gap encourages carry trades.

AUD/USD faces resistance at 0.6731-51, a cluster of previous highs in January and the 76.4% Fibonacci retracement of its December-April drop. A decisive break opens a rally to 0.6838, the 2024 high. Supports are at 0.6645-50 and 0.6590-0.6600.

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