AUD/USD lost nearly 100 pips on Monday and failed to stage a rebound. Economists at ING believe that any rebound to the 0.72/73 area will not be seen until the fourth quarter. While the RBA may prove a relatively neutral factor for AUD for the time being, there are lingering downside risks stemming from potential fresh instability in the global risk environment and more grim data coming from China.
We suspect that any sustained recovery to the 0.72-0.73 region in AUD/USD would need to wait until Q4.
In Australia, growth is likely to hold up better than in several other major economies into 2023. Therefore, economists at Rabobank maintain their forecast of a move to AUD/USD 0.74 on a 12-minth view. Australia is facing slowing economic growth into next year. However, even with aggressive interest rate hikes from the RBA this year, the 2023 outlook appears more buoyant than in many other major economies including the US, Eurozone and the UK. This bodes well for the medium-term AUD outlook vs. a basket of other G10 currencies.
Although we see risk that another bout of safe haven USD buying could push AUD/USD lower on a one to three-month view, we favour buying the currency pair on dips and expect a move to 0.74 on a 12-month view.