The Australian Dollar depreciated for the third consecutive month in October. Economists at MUFG Bank analyze Aussie’s outlook.
AUD downside risks diminishing from here
The RBA has made clear in recent communications that inflation needed to decline at a certain pace and a slower-than-expected pace could warrant further tightening. The OIS market is now priced at a little over a 50% probability of a hike on 7th November. It is a close call but we are not convinced that recent developments will trigger a ‘material’ revision to inflation forecasts.
China has announced a CNY1 trillion fiscal stimulus package which could well mean Chinese growth in 2024 is stronger than the current consensus estimate (4.5%; Bloomberg) and this should help provide AUD with support.
Assuming the RBA refrains from hiking in November, downside risks for AUD/USD may persist over the coming months and a brief breach of 2020 lows is possible but based on slower growth emerging in the US, we then expect AUD to turn higher.
AUD/USD – Q4 2023 0.63 Q1 2024 0.66 Q2 2024 0.67 Q3 2024 0.67
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