Synopsis:

Danske Bank provides an analysis of the AUD/USD pair following its rise above the 0.65 level, driven by positive risk sentiment and a broad weakening of the USD. The bank offers insights into both the near-term and longer-term prospects for the currency pair.

Key Points:

• Recent Rise in AUD/USD: The AUD/USD pair exceeded the 0.65 mark, bolstered by an upbeat risk sentiment and the USD's broad weakening.
• Near-Term Outlook (1 Month): In the near term, easing financial conditions and lower oil prices are expected to improve the global growth outlook. This scenario could further elevate the AUD/USD, with a one-month forecast of 0.66.
• Longer-Term Considerations: Despite the near-term optimism, Danske Bank remains cautious about the longer-term trajectory of the AUD/USD. They anticipate that the lagged effects of past monetary policy tightening and the US's economic outperformance will likely bolster the USD against cyclical currencies like the AUD.
• Challenges for the AUD: Specific challenges for the Australian dollar include weakening terms-of-trade due to lower commodity prices and the hawkish pricing of the Reserve Bank of Australia (RBA), with only 22 basis points of cuts priced in for 2024 compared to 108 basis points for the Fed.
• 12-Month Forecast: Danske Bank predicts a downward movement for the AUD/USD in 2024, with a twelve-month forecast of 0.62.

Conclusion:

While Danske Bank acknowledges the recent uplift in AUD/USD and foresees a further short-term increase, their analysis suggests a more cautious longer-term view. The bank expects the AUD to face headwinds from both internal factors, like the RBA's policy stance and external pressures, notably the US's relative economic strength and global commodity price trends. This outlook culminates in a prediction of a lower AUD/USD level at 0.62 in the 12-month forecast.