Fundamental Forecast for Australian Dollar: Bullish The marked appreciation in the Australian dollar may gather pace going into May as investors speculate the Reserve Bank of Australia to tighten monetary policy further in 2011, and the policy statement accompanying the rate decision scheduled for the following week could strengthen the bullish sentiment underlying the high-yielding currency as investors increase their appetite for risk. Although the RBA is widely expected to keep the benchmark interest rate at 4.25% in May, the central bank may adopt a hawkish outlook for future policy as the headline reading for inflation expands at the fastest pace since the fourth-quarter of 2008, and speculation for higher borrowing costs should continue to carry the AUD/USD to fresh record highs as the pair persistently pushes above psychological barriers.
According to Credit Suisse overnight index swaps, investors are pricing a zero percent chance for a 25bp rate hike, but see borrowing costs in Australia increasing at least 25bp over the next 12-months as growth and inflation accelerates. At the same time, a Bloomberg News survey shows 21 of the 22 economists polled forecast the RBA to keep the cash rate on hold, while Nomura Australia is calling for a rate hike, and the Read more »
