* We recently lowered our AUD/USD forecast path (Emerging Markets Quarterly: Repositioning, not playing defence, 20 March 2012) and now expect AUD/USD to trade in a 1.04-1.07 range over the next 12 months. This is consistent with our technical strategists’ expectation of AUD/USD remaining in a 1.01-1.10 range over the next 6-8 months.
* We expect high oil prices and signs of weaker Chinese economic activity to keep AUD/USD near current levels over the next month.
* The underlying reasons we think AUD/USD will not fall much below 1.04 this year (commodity prices and China growth, yield advantage, cyclical and structural demand) are the same reasons why we do not expect significant appreciation above 1.07.
* The high beta of the AUD to global market sentiment and a typically non-interventionist RBA pose a risk to our range-bound AUD/USD view, with AUD overvaluation suggesting greater risks to the downside.
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Barclays Capital