Australian Dollar: RBA hike may not sustain AUD gains – Rabobank

Rabobank expects the Reserve Bank of Australia (RBA) to raise interest rates at its upcoming meeting, supported by stronger-than-expected inflation data and hawkish policymaker comments. However, concerns that Governor Bullock may highlight economic headwinds have weighed on the Australian Dollar (AUD). The bank sees AUD/USD rising to 0.71 in three months but has lowered its 9- and 12-month forecasts to 0.72 from 0.73, reflecting a relatively constructive outlook for the US Dollar (USD).

Australian Dollar weighed by growth worries

"It is RaboResearch’s view that the RBA is primed to hike rates at tomorrow’s policy meeting. Indeed, according to the Bloomberg survey, all but three forecasters expect the central bank to announce a rate hike this week. Despite the strength of the market’s conviction about the direction of policy this week, the AUD is the third worst performing G10 currency measured over the past 5 days."

"The reasons behind Rabobank’s expectation for a rate rise this week lie with the recent stronger than expected Australian CPI inflation data coupled with recent hawkish commentary from RBA rate setters."

"While it is RaboResearch’s house view that there is risk of subsequent rate hikes, depending on the trajectory of the oil price after the US mid-term elections, the lacklustre tone of the AUD in recent sessions reflects the risk that Governor Bullock could instead indicate that she is becoming more concerned about the health of the real economy."

"Supported by our house call which sees risk of further RBA tightening this cycle, we see scope for AUD/USD to edge higher to 0.71 on a 3-month view. That said, given the expectation that the Fed will hike rates further in December, upside potential for the currency pair is likely limited. Indeed, if attention does start to refocus on the headwinds facing household demand from higher interest rates and inflation, AUD/USD could start to struggle."

"For now we have revised lower our 9- and 12-month AUD/USD forecasts to 0.72 from 0.73. This reflects our relatively constructive medium-term view for the USD."

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