Economists at Credit Suisse believe the AUD/USD pair upside beyond 0.80 might be limited for now.

On Wednesday, the aussie extends the bounce above 0.7750 as USD bulls take a breather.

Key quotes

“Near-total local eradication of COVID-19 and pro-cyclical exposure to Asian demand have been idiosyncratic drivers of AUD strength beyond what is implied by USD weakness. This is driving speculation that the Reserve Bank of Australia (RBA) might push back against AUD strength. Furthermore, external accounts are very supportive of AUD strength.” 

“In December the RBA committed to keeping rates on hold for 3 years, a commitment that markets have already started to challenge, pricing in more than one hike by 2023. An upward revision to GDP and CPI forecasts appears more likely than an attempt to weaken the currency, especially if Jobkeeper program is extended beyond Q1 deadline.”

“While we remain constructive on AUD, upside potential might be limited north of 0.80. Relations with China remain fraught and while lasting impact on trade is unlikely due to lack of viable iron ore supplier alternatives, occasional bursts of tension are a possibility.”  

“If the re-pricing in Australian yields were to accelerate faster than in US yields, additional QE by the RBA is a reasonable policy option markets might price in. Financial stability risks are not yet urgent enough to warrant RBA vigilance.”