Latest forecasts from analysts at Dutch-based investment bank Rabobank show any strength in the Aussie Dollar will likely be short-lived as they forecast weakness in the currency over coming months.
The news comes as Australia's Dollar starts the new week on the front-foot, benefiting Monday from a Fox News interview in which US Treasury Secretary Steven Mnuchin said the U.S. and China have agreed to suspend a series of protectionist trade tariffs measures levelled against each other back in March, quashing fears of a so-called trade war between the world's two largest economies.
The U.S. Dollar was the top riser in the developed world currency basket Monday as a result of the agreement although the Australian Dollar came a close second thanks to the close trade ties between China and Australia.
However, the Antipodean currency had already seen among the greatest losses relative to the Dollar in 2018 after falling by 3.8% during the first six months of the year, and the Rabobank team say it won't be long before these losses renew.
This is because relative short-term interest rates have returned as the dominant driver of exchange rates and a downbeat outlook for Reserve Bank of Australia monetary policy has conspired with a trigger-happy Federal Reserve in the US to force the Aussie Dollar to its lowest levels since early 2017.
However that fixation on relative rates also means that, assuming the Fed sticks with its earlier guidance to keep raising U.S. interest rates at a steady and gradual pace, the Antipodean currencies are still amongst the most vulnerable in the developed world to another step higher in U.S. benchmark rates and bond yields later in 2018.
"There are some domestic reasons behind the softness in both the AUD and NZD since February. However, a large part of the movement in FX markets recently can be linked to a broad-based reappraisal in the outlook for the USD," says Jane Foley, an FX strategist at Rabobank. "Having hit our 3 month targets for both AUD/USD and NZD/USD we have lowered our forecasts moderately for both of these currency pairs."