Synopsis:

Bank of America maintains a bullish stance on the Australian dollar from Q2 2025 onward, expecting AUD to outperform all G10 currencies by year-end. While reciprocal tariffs have hit risk proxies like AUD hard, the USD’s underperformance hints at continued FX divergence. BofA recommends buying AUD/CNH as a strategic trade.

Key Points:

• Tariffs Trigger Risk-Off, But Not USD Strength:
  Despite sharp falls in equities and risk-sensitive FX, USD indices have dropped, indicating the typical risk-off USD rally is absent.

• Bullish AUD from Q2:

  • BofA expects AUD to gradually appreciate from Q2, driven by:

    • USD depreciation,

    • China’s stimulus effects,

    • Limited RBA easing (only two more cuts expected in May and November).

  • Markets are currently overpricing RBA cuts, which provides a rate support tailwind.

• Trade Recommendation – Long AUD/CNH:

  • Target: 4.89

  • Stop-loss: 4.44

  • Spot reference: 4.5835

  • Preferred over USD/CNH due to:

    • Lower beta to USD moves,

    • Positive carry,

    • BofA expects USD/CNH to rise to 7.5 by quarter-end.

  • Risk: Disorderly devaluation of the Chinese yuan.

Conclusion:

Despite recent AUD weakness amid tariff-induced volatility, BofA sees a structural turn for AUD starting in Q2. They recommend strategic long positions, particularly against CNH, where the trade offers better carry, rate support, and protection from broad USD beta.