Bank of England Expected to Hold Interest Rates at 3.75% as Inflation Remains Elevated 
Markets React as Tensions Rise Between White House and Federal Reserve Over Interest Rate Pressure 
Bank of Japan Likely to Delay Rate Hike Until July as Economists Eye 1% by September 
Bank of Canada Holds Interest Rate at 2.25% Amid Trade and Global Uncertainty 
OCBC Raises Gold Price Forecast to $5,600 as Structural Demand and Uncertainty Persist 
ECB’s Cipollone Backs Digital Euro as Europe Pushes for Payment System Independence 
It was a quiet day in markets yesterday. The Aussie tumbled ahead of speeches of FOMC Member Kaplan and later in the week from Fed Chair Yellen.
Ahead of next month’s RBA’s monetary policy, we wish to shed some light on AUDUSD as it is expected to decline modestly through 2017 on skinnier rate differentials and weaker terms of trade profile.
However, the lower conviction in the US wage and inflation outlook, persistent weakness in the USD, solid Chinese growth in 2017 so far and strength in spot commodity prices mean that the pace of decline is likely to be slower. If the RBA remains firmly on hold, as we expect, and the US dollar rises on tighter Fed policy, then AUDUSD could fall to 0.76 by year-end.
We, therefore, make further upward revisions to our forecast trajectory. Our Dec-17 target is adjusted higher to USD 0.76 (prior was USD 0.73).
By 2Q’18, we forecast AUD to USD 0.72 (prior was USD 0.67).
Well, on the contrary to our expectations, AUDUSD decisively broke out of its long held USD 0.72-USD 0.78 range last month.
Another bout of USD weakness and a misinterpretation of the RBA's July Board meeting minutes conspired to push AUDUSD above USD 0.80c.
The medium perspectives on AU swap yields: The RBA outlook (on hold for some time) is affixing short-redemption interest rates and should keep 3yr swap rates in a 1.8% to 2.3% range, as long as core inflation remains below 2%. Longer maturity rates will largely follow US rates.
