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Mar 14 - 06:55 PM

RBC: Expecting Sideways Movement for AUD/USD M-Term with Mild Downside Bias

By eFXdata  —  Mar 14 - 04:15 PM

Synopsis:

RBC predicts that the AUD/USD currency pair will exhibit a sideways trading pattern with a slight downward inclination in the forthcoming months. This outlook is based on Australia's domestic demand cooling off post the Reserve Bank of Australia's (RBA) policy tightening cycle and a significant turn in inflation pressures. RBC anticipates 50 basis points of rate cuts by the RBA in Q4 2024, positioning the RBA to trail behind both the Federal Reserve and the European Central Bank regarding the initiation and magnitude of rate reductions.

Key Points:

  1. Domestic Economic Climate: Australia's domestic demand has seen a downturn, coupled with a clear shift in inflation dynamics, pointing towards forthcoming RBA rate cuts predominantly in the latter part of 2024.
  2. Australia-China Trade Dynamics: While trade between Australia and China has seen an uptick, the decline in iron ore prices since the onset of the year imposes a negative influence on the Australian dollar, albeit mitigated by the current stabilization in China's economic downturn.
  3. Influence of US Dollar and External Factors: The AUD/USD rate has largely been influenced by the broader movements of the US dollar. Given the expected resilience of the USD, combined with a cautious RBA approach and a mixed bag of effects from China's economic condition, the AUD/USD pair is projected to experience mild fluctuations with a subtle downward trend.

Conclusion:

Considering the anticipated steadfastness of the US dollar, a cautious stance by the RBA, and a balanced impact from China's economic conditions, RBC anticipates the AUD/USD to navigate through a period of lateral movement marked by a slight downward bias. This perspective underscores the interplay of domestic and international factors shaping the currency pair's trajectory in the near to medium term.

Source:
RBC Research/Market Commentary

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