The Australian dollar to US Dollar (AUD/USD) exchange rate strengthened to 45-month highs just above the 0.72 level last week before a limited retreat to around 0.7160.
According to Scotiabank, fair value for the AUD/USD pair is around 0.77 and the bank considers that there is scope for a relatively quick move for the pair to move to 0.75 and it also sees the potential for further gains on a medium-term view.
Risk appetite dipped in an initial response to the US-Iran conflict, but Scotiabank notes that there has been a notable recovery amid hopes that there will be a resolution to the conflict. Equity markets have recovered and energy prices have retreated from peak levels. If conditions remain favourable, the bank sees scope for further Australian dollar gains.
The Reserve Bank of Australia increased interest rates at the February and March policy meetings with the cash rate at 4.10%. This has put short-term interest rates above equivalent US rates and, Scotiabank notes that the Australian currency should be trading significantly stronger if it is trading in line with interest rate differentials.
