Synopsis:

ANZ expects limited upside for AUD/USD in September due to higher volatility and a risk-off environment. They predict a slight decline in the near term but anticipate a stronger AUD/USD by the end of the year, contingent on Federal Reserve actions and domestic economic data.

Key Points:

1. Short-Term Outlook (Q3):

   • Expected Range: 0.667 to 0.664.
   • Factors: Seasonal trends and risk-off sentiment likely to constrain AUD/USD. Key local data points and the RBA's September meeting will be crucial. A 25bp Fed rate cut is expected, which might drive AUD/USD lower.

2. Fed Rate Cut Impact:

   • 25bp Cut: Anticipated to push AUD/USD towards 0.667 and 0.664, testing the 50- and 100-day moving averages.
   • 50bp Cut (Less Likely): Could result in AUD/USD rallying to recent highs above 0.68.

3. Year-End Outlook:

   • Forecast: 0.69.
   • Rationale: Expected strength in AUD/USD by year-end, supported by anticipated Fed rate cuts and local economic conditions.

4. Key Drivers:

   • Local Data: Monthly CPI, trade data, and the RBA meeting will influence the AUD.
   • Fed Actions: September's rate decision will impact the USD leg of the currency pair and overall AUD/USD dynamics.

Conclusion:

ANZ predicts limited upside for AUD/USD in September due to a risk-off environment and expected Fed rate cuts. However, they foresee a stronger AUD/USD by year-end, with a target of 0.69, driven by expected easing in US monetary policy and domestic economic conditions.