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POLL-Australia dlr hostage to trade outcomes, RBA rate calls

Credit: REUTERS/THOMAS WHITE

Analysts doubt the Australian dollar can sustain its recent strength in the near term, but are forecasting a gradual rise over time should the Sino-U.S. trade talks progress to some sort of deal - still a major uncertainty.

By Wayne Cole

SYDNEY, Nov 7 (Reuters) - Analysts doubt the Australian dollar can sustain its recent strength in the near term, but are forecasting a gradual rise over time should the Sino-U.S. trade talks progress to some sort of deal - still a major uncertainty.

The outlook for local interest rates is also a big unknown with markets divided on whether the Reserve Bank of Australia (RBA) will ease again or even take a drastic shift to unconventional policies such as bond buying.

Analysts polled by Reuters see the Aussie at $0.6700 AUD=D3 in one and three months, down from its current $0.6865 level but in line with the October poll.

The currency was then seen rising to $0.6800 in six months and $0.6900 on a one-year horizon, though again much depends on how the global backdrop for risk develops.

Just a hint of momentum in the trade talks in recent weeks was enough to lift the Aussie as far as $0.6930 before it ran out of puff.

"Though not yet agreed, the chances of a deal happening appear sufficiently high such that we no longer expect AUD/USD to fall through its $0.6670 early October lows, but rather end the year closer to $0.7000," said Ray Attrill, head of FX strategy at National Australia Bank.

He noted the Aussie also faced major resistance at the 200-day moving average, currently at $0.6949, which it had not closed above since late 2018.

"We're banking on resistance holding, but if we're wrong would then need to allow for AUD/USD spending time back above $0.7000 between now and Christmas," said Attrill.

Forecasts for the New Zealand dollar NZD=D3 were unchanged from October, with the currency seen at $0.6300 in three and six months, before rising to $0.6500 in one year.

The kiwi has also benefited from the better risk mood recently to reach as high as $0.6466, before profit-taking dragged it back to the current $0.6348.

Investors are cautious in case the Reserve Bank of New Zealand (RBNZ) cuts interest rates again at its next policy meeting on Nov. 13.

The market is pricing around a 69% chance of a cut to 0.75%, though the call could be a close one given the improved global background and both the RBA and U.S. Federal Reserve seemingly on hold for the time being.

Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia, is still looking for a cut this month and in February, taking rates to 0.5%.

"Soft New Zealand business confidence, coupled with the risks facing the global economy, suggest New Zealand's economic growth is unlikely to pick up materially in H1 2020," he added.

CBA sees the kiwi at $0.6200 by March

(Polling by Sujith Pai, Nagamani Lingappa and Tushar Goenka in Bengaluru; Editing by Shri Navaratnam)

((Wayne.Cole@thomsonreuters.com; 612 9321 8162; Reuters Messaging: wayne.cole.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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