Outlook for the Australian looks bright as ANZ Bank upgrade their economic forecasts

A look at the wholesale exchange rate markets on Monday morning shows:

The British pound vs Aus dollar exchange rate is 0.08 pct up on Friday's closing level at 1.6726.
The British pound vs the New Zealand dollar exchange rate is 0.4 pct higher at 1.9091.
The Australian dollar vs US dollar rate is 0.06 pct lower at 0.9671.

Be aware: The above are spot market quotations from the inter-bank market. When your bank does pass on a retail rate they will do so after having subtracted their own discretionary spread. An independent FX provider will guarantee to undercut your bank's offer, thus delivering up to 5% more currency. Find out more here.

The Aus dollar continues to stage a recovery after a poor first half to 2013.

And, according to analysts at ANZ Research this recovery could extend into a renewal of the longer-term rally that has confirmed the AUD as a power-house of the global currency marks.

ANZ Research upgrade economic forecasts

A strong economy = a strong currency. This primarily feeds through via the monetary policy mechanism whereby interest rate hikes are initiated to cool a growing economy.

A high interest rate means a high yielding cash investment; thus foreign money flows into Australia bidding up demand for the local currency.

Thus, it is of interest to hear that ANZ Research have upgraded their outlook for the Australian economy:

"We now expect GDP to grow at 3.1% and 3.4% in 2014 and 2015 respectively, gathering pace to a strong 4.4% in 2016."

"We have extended our forecast horizon to 2016 and incorporated an even stronger outlook for resources exports.

"Exports are set to be a major driver of growth through the forecast period, with domestic demand remaining relatively subdued through 2014, before picking up through 2015 and 2016."

ANZ do caution though that relatively soft jobs growth will see the unemployment rate remain in the 5.75-6% range through most of 2014, with little meaningful improvement until 2015.

Importantly, from a currency and interest rate perspective, ANZ Research say:

"ANZ now believes that the chance of one last rate cut in the cycle has dipped below 50%, and now sees the Reserve Bank remaining on hold for an extended period as the economy navigates the transition of growth drivers from mining investment to other sources of activity."

"We expect that the RBA will gradually lift the cash rate through 2015 and the first half of 2016 back to around 4%, which we see as the neutral rate.

"On the back of these changes, we have also upgraded our forecasts for the currency and now see the AUD trending only slightly lower through next year to USD0.87, stabilising at this level through 2015 and 2016."