AUD/USD: bearish bias on Fed and RBA expectations - Westpac

Analysts at Westpac explained the the fall in the AUD from USD 0.77 to USD 0.74 which we expect near year’s end will also be supported by the market’s increasing acceptance of the much awaited FED rate hike at its December meeting (current market pricing is a probability of around 60%).

Key Quotes:

"We expect that acceptance of the likelihood of a FED move in December will also precipitate revisions in the market's expected profile for FED policy in 2017. With currency markets, in particular, being highly pre-emptive and prone to fully pricing in a new scenario we expect a solid boost in the value of the USD will be forthcoming.

The net effect of the stronger USD and the jolt to fair value is expected to take considerable pressure off the RBA at its November board meeting. Consequently we expect that fall in the AUD without the need for a supporting rate cut from the RBA."