Australian Dollar: Dovish RBA hike yet year-end 0.7100 target – ING

ING’s Francesco Pesole reports the Australian Dollar fell after the RBA raised rates to 4.85% but signalled a more dovish stance via a 6-3 vote, softer guidance and a weaker economic outlook. He expects no further hikes, yet remains positive on AUD thanks to strong carry and limited scope for dovish repricing. ING still targets AUD/USD at 0.7100 by year-end despite near-term challenges.

RBA stance and AUD/USD year-end target

"The Aussie dollar came under pressure this morning after the RBA hiked rates as expected to 4.85%, but delivered some dovish signals. First, the 6-3 split suggests lower conviction around today’s decision than in markets, which had almost fully priced in a hike (21bp)."

"Second, the statement dropped its reference to potential further hikes for the first time since June. Third, the economic outlook was revised sharply to the downside, with a focus on falling house prices weighing on consumers and upside risks to unemployment."

"At the press conference, Governor Michele Bullock reinforced the RBA’s wait-and-see approach, stressing that monetary tightening still has to feed through to the economy. She left the door open to further tightening, but the bar is clearly higher now. The RBA appears happy to assess the impact of previous hikes before acting again."

"This is in line with our forecast of no further RBA hikes. Despite today’s correction, we remain positive on AUD, which offers the best short-term carry in G10, including on a volatility-adjusted basis. Markets price only a one-in-three chance of another hike at the coming meetings and already embed 13bp of easing by the end of 2027, leaving AUD with limited risk of further dovish repricing for now."

"The current environment remains a bit challenging for AUD amid AI-related jitters, but we remain confident that our 0.7100 AUD/USD target can be reached by year-end."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)