Currency outlooks

The near-term outlook for the Australian dollar is favorable, especially if the U.S. dollar corrects from its broad September/October rally.

However, unless the economic data convinces the market a Reserve Bank of Australia (RBA) hike is likely in the first quarter of 2006, the AUD can buck the generally firm tone for the U.S. dollar. In a strong U.S. dollar environment, the Australian dollar may generally fare even better than the Swiss franc, Euro, or yen.

The New Zealand dollar is better positioned to hold its own. Its central bank is one of the few that can keep pace with the Fed’s tightening in the coming months, which may help the Kiwi hold up on a cross basis as well. The NZD could rise into the $0.7100-0.7150 area, which capped during the summer, from its current $0.6960 area. That said, an advance above $0.7100 would violate a six-month downtrend and could trigger a stronger move.