The AUD is the worst-performing G10 currency so far this month. Economists at HSBC analyze Aussie outlook.
The relative rate outlook could weigh on the AUD
The outlook for relative rate cuts (rather than the price of residual growth) should be an increasingly important driver for AUD/USD. Markets are expecting 106 bps of Fed cuts in 2024 vs just 3 bps of RBA cuts. In our view, risks lean towards a combination of rate cut outlooks between the two central banks and the current modest rate cut expectations for the RBA limiting room for relative rates to favor the AUD.
However, with AUD/USD near the bottom of the recent range, we see risk-reward favouring the upside, based on short-term valuation metrics. The pair is unlikely to stage a sizeable rebound until China releases additional forceful demand-side measures (especially in relation to the property sector) and there are signs of continued disinflation and stronger global growth. However, with these conditions not fully met, we expect the currency pair to remain range-bound.
