The Australian dollar's persistent buoyancy won't last forever, ANZ said, keeping a bearish view even as it raised its near-term forecasts for the currency.
"While we continue to think that the fundamental grounds for a rally are not in place, market volatility has not provided the catalyst for weakness that we anticipated," the bank said. "We cannot identify near-term drivers of a significant depreciation," it said, noting the lack of Brexit contagion and an indication that the Federal Reserve may accept a lower neutral rate.
A neutral interest rate is the rate at which monetary policy neither accelerates economic growth or slows it down; many economists have postulated recently that the U.S. neutral rate may now be lower than in previous economic cycles.
ANZ increased its end-year forecast for the Australian dollar to $0.76, up from $0.67.
The currency has rallied hard this year, rising from under $0.70 at the beginning of the year to as high as levels above $0.77 last week. At 11:04 a.m. HK/SIN, the Australian dollar was fetching $0.7587.
But ANZ said it still expected the Aussie dollar to face serious headwinds. Its latest forecast is for the currency to fall below $0.70 in 2017's December quarter, before sliding as low as $0.66 by 2018's March and June quarters.
"We continue to think that the distribution of risks is to the downside and that this is simply a timing issue for our bearish view, rather than the beginning of a fresh cycle of strength in the Australian dollar," it said.
For one, ANZ noted that the markets for key Australian exports iron ore and coal remained among the world's most oversupplied, which was likely to prevent any sustained rally in the terms of trade. Additionally, the recent strength in the Australian dollar could weigh on economic growth.
"This outlook for both the domestic economy and key commodity sectors means any further appreciation in the Australian dollar is likely to be driven by global liquidity and risk appetite factors, rather than anything fundamental," ANZ said.
Amid a global low-yield environment, foreign investors have recently targeted Australian assets because they offer higher payouts, with inflows likely a driver of the currency's recent gains.
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—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1