The AUD outlook remains a story of conflicting factors. Economists at ING expect the aussie to tick down towards 0.68, however, AUD/USD could see a gradual upward-sloping path in the medium run. On the external side, the effect of still elevated commodity prices is being offset by wobbly risk sentiment and concerns about China’s demand outlook.
Bowled over by the China slow-down
Domestically, the Reserve Bank of Australia has started hiking more aggressively than expected, but market pricing is replicating that of the Fed (rates at 3.0% by year-end) which appears overly hawkish. We continue to see some moderate downside risks for the AUD (possibly to 0.68) although a gradual upward-sloping path in the medium run remains our base case.