CommBank Australian dollar (AUD) forecasts have been raised, reflecting concerns about the US dollar (USD) outlook as President Trump struggles to get his tax reform package passed in the Congress.
The forecast for the end of the financial year at 30 June 2017 is up 1 US cent to 75 US cents, from 74 US cents, while CommBank's 31 December 2017 end of calendar year forecast is raised to 76 US cents, up 5 US cents from 71 US cents.
The bank's currency team was forecasting the Aussie to sit as low as 69 US cents by March next year, but this has been revised higher to 78 US cents with a 31 December 2018 forecast of 80 US cents. The Aussie is currently sitting around 75.5 US cents today.
"Despite a strong US economy and the US Federal Reserve lifting interest rates, the USD has been declining over 2017, because market participants want to see substance on Trump's proposed tax cuts," the CommBank currency team said in a note.
"The delay to the passing and implementation of US company tax cuts means the USD is no longer set to weigh on the AUD in the near-term."
The team added that despite commodity prices easing from a recent high in late 2016, they expect commodity prices to "remain on an upward trend over 2017".
Elevated commodity prices feed into an improved Australian terms of trade.
Global inflation pressures have swung from being deflationary in 2016 to inflationary in 2017, CommBank currency strategists said.
"Australia's economy has also experienced this change and this suggests the next move in interest rates by the RBA (Reserve Bank of Australia) is an increase in late 2018," the team said.
"The AUD will receive support as interest rate markets continue to price the next move by the RBA as an interest rate increase, rather than as an interest rate decrease."