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Headwinds Ahead for the Aussie

Wednesday, 22 Aug 2012 | 9:55 AM ET

The central bank isn't the only party concerned about the strong Australian dollar.

Melbourne, Australia
Mahmud Hasan | Flickr | Getty Images
Melbourne, Australia

The Australian dollar has been a super performer over the past year - but that was then, says Sue Trinh, a currency strategist at Royal Bank of Canada.

Trinh took note of the Reserve Bank of Australia's latest statement on monetary policy, especially the comments about the drag on the economy created by the strong Australian dollar. So far, the central bank has only tried to jawbone the Aussie lower, but Trinh, pointing to lackluster data from the key export sector, thinks there could be more to come.

"RBC remains comfortable with further easing in our RBA profile, including 25bps in Q4," she wrote in a note to clients. "In total, RBC forecasts 75bps of cuts in the next 12 months, more aggressive than the forward curve (-50bps)." In other words, Royal Bank of Canada expects 75 basis points of easing from the central bank in the rest of 2012, more than the market is forecasting.

What does that mean for the Australian dollar, in Trinh's view? You got it.

That much easing, she says, would be "consistent with AUD/USD underperformance if rate expectations converge toward our forecasts."

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