Outlook for the AUD - rallies to be limited except against GBP

Recapping the view from Westpac for the Australian dollar in the wake of the RBA rate cut and weak Q1 GDP this week.

In brief, a little weaker still from the AUD but much more weakness for GBP ahead:

AUD has also faced severe headwinds

• RBA's rate cut this week validated by Australia's weak Q1 GDP data which reinforces the case for at least one more cut in coming months

our baseline forecast is for a steady hand in July

• markets already pricing a terminal cash rate below 0.80%, AUD may well have enough bad news priced in for now in terms of yield differentials

coming weeks, we continue to see AUD rallies as limited against most majors

• But the pound still seems to have room to price in deeper political turmoil, with the Tory leadership contest to drag out to late July and most contenders unlikely to try to appeal to the political centre.

We see scope for sterling underperformance to around GBP 0.5600/50 or AUD 1.7700-1.7850 multi-week