The firm argues that there is more room to drop for the aussie
In a note today, strategists at the firm say that AUD/USD may fall to 0.66 by the middle of the year and towards 0.65 by the end of December. Their argument is that consumer sentiment is expected to weaken and the potential for the RBA to deploy QE down the road.
The firm says that their base case remains for two rate cuts by the RBA in 1H 2020, with the next move expected in February - although they acknowledge that it will be a close call. Noting that upcoming Australian jobs and CPI data poses a risk to their February call.
In the near-term, they argue that consumer spending will likely weaken - partly due to the bushfire crisis - before expenditure on household goods rise in the latter half of the year as homes are rebuilt, following the damages caused by the bushfires.
On the latter situation, they say that an expected rise in inflation and construction-related employment will not deter the RBA from easing further but it perhaps may give room for the central bank to refrain from unconventional policy this year.
That said, the firm still retains its view that the RBA is more likely than not to eventually resort to unconventional policy tools once the cash rate hits the 0.25% lower-bound.
