AUD: modestly stronger over time - Wells Fargo

Analysts from Wells Fargo, expect the Reserve Bank of Australia to remain on hold well into 2018. Their currency strategists anticipate a modestly stronger Australian dollar over time.

Key Quotes: 

“Our currency strategists think the negative influences of monetary policy dynamics on the Aussie dollar will be outweighed by the positive influences from the strengthening in commodity prices and, on that basis, they anticipate a modestly stronger Australian dollar over time. This makes the vexing challenges for the RBA even harder, as any foreign exchange pass-through effect would put downward pressure on already-low inflation.”

“The upside for Australia is that the labor market is firming and the unemployment rate has been trending lower over the past year, although that has not yet translated into significant wage gains. A firming in global growth may also translate into stronger exports for the resource-rich Australian economy.”

“Stuck between needing to stimulate the economy through lower rates yet not wanting to drive household debt even higher, we expect the RBA to remain on hold well into 2018.”