The fallout from Brexit could make the Australian dollar even more alluring to investors, say leading economists and fixed income experts, adding to already intense pressure on the RBA to cut the cash rate to 1.5 per cent and lower.
They say the shrinking pool of triple-A rated sovereign credits, Australia's relatively high interest rates and doubts about further US interest rate increases would continue to draw foreign money into Australian government bonds and other assets, pushing the Aussie higher against the US dollar.
Despite whipsaw movements in the direct aftermath of the UK's historic vote on Friday to leave the EU, the local currency has proved surprisingly resilient.
Late on Wednesday it was fetching about US73.90¢, down from post-Brexit highs of US74.66¢ and compared with US76.48¢ just before the shock referendum results became clear on Friday.
Jamieson Coote Bonds executive director Charlie Jamieson said rather than its conventional status as a commodity-linked risk asset, the Aussie had become "somewhat of a flight-to-quality currency" amid recent Brexit-related volatility.
This was largely due to the country's relatively high interest rates and triple-A rating by the three main credit rating agencies.
The two-notch downgrade this week of the UK's AAA sovereign debt rating by Standard & Poor's, and a one-notch cut by Moody's, made Australia stand out even more, he said.
"Clearly the AA downgrade to the UK on Monday leaves Australia in a much smaller camp of triple-A's now," said Jamieson.
Citi, in a note to clients on Wednesday makes the same points.
"Name a country other than Australia with low political risks, a AAA credit rating and a positive yield," asked currency strategist Todd Elmer.
"It is tough, isn't it?
"It is too soon to catch the falling knife, but when the dust settles, the Australian dollar may be among the outperformers," he said.
'Almost certainly' see the RBA cut
Saul Eslake, one of Australia's best-known economists, says this, coupled with the likely impact of Brexit on US and Japanese monetary policy, could derail Australia's export- and services-led transition away from investment in resources-related investment.
"If, as seems likely, the Brexit outcome and the turmoil it's prompted does prompt the US Federal Reserve to defer yet again raising rates, and if it prompts the Bank of Japan to move Japanese rates even further into negative territory, that's likely to bring upward pressure on the Australian dollar," he said.
"This would be unhelpful in terms of the transition the Australian economy is trying to make away from mining investment-led growth to growth led by more diverse array of sources of economic activity.
"And if that is the case, then we'll almost certainly see the Reserve Bank respond to that by cutting interest rates further."
Market bets on a cash rate cut by the RBA have surged since Friday's result in the UK, with an August 2 reduction, to 1.5 per cent, on Tuesday rated a 76 per cent chance.
Market pricing has terminal rates this week at 1.39 per cent by February, suggesting one 25 basis point cut and a roughly 40 per cent chance of a second one.
Royal Bank of Canada this week changed its forecast for the bottom of the RBA's current easing cycle, to 1.25 per cent by mid-2017 from 1.5 per cent.
Cash rate seen as low as 0.75
Barclays also changed its short-term call, from 1.75 per cent to 1.5 per cent at the August board meeting.
Jamieson Coote Bonds sees the cash rate as low as 0.75 per cent next year, with an August reduction a certainty, following second-quarter inflation data in late July.
"The RBA, as much as they were the first responder in many ways in the GFC, probably won't go in the July meeting," Mr Jamieson said.
"But certainly after the inflation data, in August, we absolutely expect them to go again."
Former RBA board member Roger Corbett, in an interview with the ABC on Tuesday, did not discount a steady move towards a cash rate around zero, although he cautioned that it would take a "substantial" shock.
