Australian Dollar: Shallow uptrend risk into next year – Rabobank

Rabobank’s Senior FX Strategist Jane Foley notes AUD/USD is currently on the back foot, with the Australian Dollar the weakest G10 currency on a one-day view. Despite market doubts, Rabobank still expects one more Reserve Bank of Australia (RBA) rate hike this year. Foley highlights Chinese demand weakness, energy-related trade shocks and a softer domestic backdrop, but still sees scope for a shallow AUD/USD uptrend into next year.

Australian Dollar pressured yet supported

"Despite hawkish comments today from Deputy Governor Hauser, AUD/USD is on the back foot. The AUD is the weakest performing G10 currency on a 1-day view and the third weakest after the JPY and USD on a 5-day view. While it is Rabobank’s expectation that the RBA will raise rates once more this year, the market is less certain."

"Market implied policy rates are currently priced for just 12 bps of rate hikes on a 3-month view. In addition, market commentary is pointing to a list of headwinds including weaker Chinese demand for Australian commodities and a softer domestic economic climate as potentially undermining the AUD going forward."

"While safe haven USD flows on any further escalation of the Iran war could drive AUD/USD back to the 0.70 area near-term, we continue to see scope for a shallow uptrend in AUD/USD into next year aided by November RBA rate hike risk and on Rabobank’s call that the Fed will avoid tightening policy this year."

"Given the backdrop of soft Chinese growth and the consensus view that the RBA’s rate hiking cycle is coming towards the end, the AUD may be losing its shine. However, the USD has also lost its lustre in recent weeks as Fed rate hike expectations have been pared back, and this should provide AUD/USD with some support."

"Additionally, Australia’s current account has swung into deficit on the back of the country’s large net foreign liability position. While a current account deficit is not necessarily associated with a weak currency, it can raise its vulnerability in times of broad-based market uncertainty."

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