Will the Aussie dollar continue to slide?

We believe the $US will appreciate against the $A, but still feel the Japanese yen will be the market's funding currency of choice.

The AUD/USD has broken the multi-month range lows of 1.0100 and could test a key support at 0.9860 (200-week moving average), where a break should see it move towards 0.9600.

We may see one more rate cut this year (probably November), although this is currently priced into the AUD.

The key to how much further the AUD will fall in 2013 and 2014 will be how bonds fare.

Unless we can see the 10-year bond drop below 3% there will be continued buying interest in the AUD, given the limited supply of "super" AAA-rated bonds.

On the USD side of the AUD/USD equation, we are hearing an argument from the hawks on when the Fed (US central bank) should curb its asset purchases and, while we expect this to happen in the first quarter next year, a continuation of strong employment should help support the USD.

As with the European Central Bank, USD performance will be data-dependent, and therefore we expect it to be 0.98 by year end.

The Bank of Japan has to lift inflation expectation, thus creating negative real rates.

We target 103.00 for AUD/JPY by year-end.

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