AUD/USD likely to be range bound, to trade around 0.78 by end-2018 – Lloyds Bank

The Australian dollar dropped to a new multi-month low against the U.S. dollar in December, close to 0.75, noted Lloyds Bank in a research report. The currency pair continues to be under pressure, partially because of the decline in the two-year Australian-U.S. interest rate differential, which briefly moved into negative territory in late November and early December.

The trend in rate spreads might extend further if the U.S. Fed hikes its Fed funds rate by 75 basis points in the course of next year and the Reserve Bank of Australian leaves its key rate on hold, stated Lloyds Bank. At this stage, RBA Governor Lowe has not given any indication that the central bank will hike rates imminently. Policymakers have repeated their wariness about the potential current appreciation “complicating” the ongoing economic rebalancing process and emphasizing their worries about household debt and asset price behavior. However, the Australian dollar might find support from economic benefits associated with further tightening in the labor market – jobless rate recently dropped to its lowest level since November 2012.

“Overall, we expect AUD/USD to be range bound, forecasting 0.78 at the end of 2018”, added Lloyds Bank.

At 18:00 GMT the FxWirePro's Hourly Strength Index of Australian Dollar was slightly bullish at 73.0741, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -38.4794. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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