The Australian dollar (AUD/USD) exchange rate spiked to 3-year highs just below the 0.7150 level in late January and has managed to hold above the important 0.70 level despite significant trade tensions and an attempted recovery by the US dollar.
Standard Chartered maintains a positive stance on the Australian currency and has upgraded its views. It is now backing AUD/USD gains to 0.72 on a 3-month view with a further advance to 0.75 on a 12-month view.
The Reserve Bank of Australia (RBA) raised interest rates to 3.85% from 3.60% at the February policy meeting, in line with consensus forecasts. The central bank indicated concern over stubborn inflation pressures and suggested that rates are likely to be increased again this year.
Standard Chartered notes that markets are now pricing in at least two further 25 basis-point rate hikes this year which will underpin the Australian currency, especially with the potential for Australian rates to be above US rates within the next few months.
The bank also expects that the strength in gold and metals prices will underpin the Australian currency while it also expects that Chinese yuan gains will underpin the Australian currency.
