"Significant AUD downside has started to look more like a tail risk than a central forecast. Commodity prices have risen more than anticipated, liquidity remains ample and volatility is expected to remain in check.

Valuation has also corrected. There is now a negative risk premium priced into the AUD which suggests that even if a tail risk does manifest, the current level of the AUD provides some protection relative to other cyclical currencies.

Putting this altogether, we continue to think that the current risk premium will be retained in the AUD, that fundamentals will be more stable, and that there is some further downside risk via a USD overshoot on policy.

As such we raise our forecasts, expecting the AUD to remain in its recent range for longer, and shift our bias. We recommend using weakness to buy rallies, rather than aggressively selling into strength".

ANZ maintains a long AUD/USD position from 0.7380 targeting 0.78, with a revised profit-stop at 0.7595.

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