AUD popping higher in response to February RBA rate decision - Westpac

Robert Rennie, analyst at Westpac, points out that the AUD was trading at circa 0.7205 ahead of the RBA statement and the immediate response was to pop higher towards 0.7250 reflecting the fact that the final paragraph was unchanged.

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“With commodity prices strong, the US$ marking time and global market sentiment upbeat, we see this as logical price action, and the move may extend a little further. However, the currency is likely to remain capped up towards the 0.7290/ 0.7300 level, and strength above this level seems unlikely given the dovish 'tilts' in the statement.”

“On the currency, the RBA again emphasised that the A$ remains in its 'sweet spot' range. That is the “Australian dollar has remained within the narrow range of recent times”.”

“However, it did not recognise that the A$TWI 'is currently in the lower part of the range' as it did in November, despite the TWI being at lower levels. This perhaps suggests that a lower TWI may be desired?”

“This is largely consistent with our own modelling of the A$. The AUD is in the lower half of the Westpac Markets fair value model range. The midpoint of this range of model based forecasts comes in at 0.7370; the low end of range at 0.7077 and the upper end of range 0.7660.”