AUD Range 0.92-0.88, break risk
● The AUD was stable over the month. But within a 4% range. Moves were driven primarily by external factors
● The AUD model estimates fair value at 0.93
● The coming week is action packed, but we may still see external factors drive the AUD. Monitor for a break below 0.8850
The AUD finished the month of August only slightly weaker; depreciating 0.7% against the USD and -0.3% on a trade-weighted basis. This belies the 4.3% move through the month between the ~0.92 high and 0.88 low (Exhibit 1). Much of the broad moves were driven by external factors: first, the changing expectations of FOMC policy. Second: the rising risk aversion from the sell-off in emerging market (EM) currencies. Third: the increased chances of an Allied military strike on Syria.
The local data has been relatively light, and most focus has been on the RBA’s easing and move to a more implicit, rather than explicit easing bias. The market has moved to price in less easing ahead. This supported the AUD early in the month, before losing momentum. It has helped raise the AUD/NZD cross.
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