Having dipped below the AUD/USD 0.70 level on Friday to its lowest level since July 2020, the currency pair has bounced a little higher. With a hawkish tilt already expected from the Reserve Bank of Australia (RBA) on Tuesday, the aussie could be facing disappointment. Nonetheless, economists at Rabobank expect the AUD/USD pair to drift back higher towards 0.74 later in the year.
Near-term the RBA is likely to provide the cue for AUD/USD
“Over time it is likely that the AUD will lose some of its sensitivity to risk appetite given that Australia is no longer running a current account deficit and its government bond yields are no longer offering a large carry over their US counterparts. This should reduce speculative flows in and out of the currency. Another factor that should be supportive for the AUD is the current strength of commodities such as oil (a substitute good for coal) and LNG.”
“Even though the RBA could project a more constructive tone regarding the economic outlook at its February 1 meeting, there is a strong risk that Governor Lowe will push back at market expectations of progressive rate hikes this year. Although this could leave AUD/USD on the back foot near-term, we see AUD/USD recovering to the 0.74 level towards the latter part of the year as policy tightening from the RBA moves more clearly into focus.”
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