[FXJourney]

We see AUD-USD increasing from present levels on the back of strong risk appetite, stronger commodities and supported, in part, by an EM-Asian led recovery.

Stronger fundamentals and financials
AUD has benefited from the pick-up in risk sentiment and optimism around commodities, as indicated by the gains since March. Such a trend is expected to continue over the coming year, with commodities strategist forecasting upward paths in energy, industrial and precious metals. This demand would naturally correlate to increased global appetite and be beneficial for the AUD from a trade perspective. What started as a risk appetite play is now well into a cycle with stronger fundamental support in the macro data.

The RBA’s semi-annual Financial Stability Review illustrated this last week, which, as expected, was relatively positive. Outside of the financial sectors, sentiment has been improving in households in recent months. Like other countries, the household sector experienced a considerable contraction in net worth when equities prices were falling. However, disposable income has received a significant boost from interest rate reductions and fiscal transfers. The ASX has recovered 45% from its lows in early March. Such factors look attractive on a long-term horizon, as the AU economy enters a growth cycle.