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    UK Independence Day: Rejected? – Westpac Sandeep Kanihama

    Robert Rennie, Research Analyst at Westpac, suggests that this is a non-binding UK referendum so we may not know for some time what happens next, especially if Brexit wins.Key Quotes“However, PM Cameron has rejected a ‘neverendum’ on a marginal Remain outcome. So if we see our base case – a modest remain victory – then this developing risk on move has further to run.Once we move through Brexit, markets will need to focus back onto other factors, not least the Fed. There were detectable traces of secular stagnation when Chair Yellen uttered the words: “proceeding cautiously in raising the federal funds rate will allow us to keep the monetary support to economic growth in place while we assess whether growth is returning to a moderate pace… and whether inflation will continue to make progress toward our 2 per cent objective”. Ditto James Bullard when he confirmed he was the low dot in the projections last week.Our sense remains that once the market moves beyond the current ‘Brexit paralysis’, Fed pricing will return to the fore. To be sure, Yellen could just have had extra caution thrown upon her by the unfortunate timing of her semi-annual testimony. So watch the minutes week after next. But beyond the UK referendum, a lower US$ beckons.A retest of the 16 month 92 low set early May is on the cards. That lifts EUR towards our one month target of 1.16 and GBP to 1.52. Stable/ rising commodity prices, no RBA bias, dwindling prospects of a Fed hike and waning volatility lifts AUD to 0.76, but remember, July brings a federal election, guidance from the ratings agencies and the critical Q2 CPI outcome. So we would caution against excessive optimism beyond the 0.76/0.78 region.For NZD, assuming our base case is correct, we see it trading closer to 0.73 during the next few weeks.”

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