Synopsis:

ANZ maintains a cautious view on the AUD, expecting limited upside in Q2 as risks surrounding China’s currency policy and Australia’s trade exposure continue to weigh. The AUD/USD forecast remains at 0.61 for Q2.

Key Points:

• CNY Devaluation Risk:
  Any further weakening of the CNY fix by the PBoC to absorb tariff impacts is likely to exert downward pressure on the AUD.

• China Exposure:
  With China accounting for one-third of Australia’s exports, and ongoing softness in iron ore prices, AUD is vulnerable via the terms-of-trade channel.

• Risk Sentiment:
  The ANZ Risk Appetite Index has improved slightly due to the 90-day tariff pause, but remains in negative territory, signaling cautious market positioning.

• Volatility Outlook:
  Elevated volatility is expected to persist through Q2 due to ongoing US-China trade negotiations and possible adjustments to the USD/CNY fix.

Conclusion:

ANZ continues to see AUD/USD capped near-term, maintaining its 0.61 target for Q2. The outlook hinges heavily on CNY trajectory and China-related trade dynamics, with risk appetite and commodity prices serving as key secondary drivers.