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With inflation slowing and the Australian economy cooling, the RBA may be forced to start cutting rates. However, it remains to be seen how events will unfold. AUDUSD has plenty of bullish factors to take advantage of. Let’s talk about this and make a trading plan for AUDUSD.
Monthly Australian dollar fundamental forecast
While skeptics say the Australian dollar is too weak and unlikely to reach its post-pandemic high of $0.69 due to a weak Chinese economy and the RBA’s fear of raising interest rates, AUDUSD continues to move steadily higher. The aussie has caught a tailwind and is ready to surprise its naysayers.
The growth in Australian business activity suggests that the economy is performing at or above its long-term trend. However, consumer spending remains weak and will drag the country’s GDP down. Retail sales in April fell short of Bloomberg’s expert forecasts, and consumer confidence dropped to its lowest level in 2024. The RBA is trying to figure out how not to simultaneously hurt the economy and slow inflation.
Australia’s unemployment, wages, and inflation
Source: Bloomberg.
The futures market believes the Reserve Bank of Australia will abandon its hawkish rhetoric as consumer spending declines and the labor market sees new cracks appear. Derivatives predict that the RBA will not cut cash rates until July 2025, reflecting a rapid reversal in the estimates. A few days ago, the futures market was pricing in high odds of an August rate hike.
Goldman Sachs believes that the Australian financial regulator will ease monetary policy three times in the next 12 months, starting in November. The main reasons are the slowdown in Australian inflation and the monetary expansions of the G10 central banks.
In fact, while the Reserve Bank wavers, the shift from the US dollar to the Australian dollar in carry trades, the strong global risk appetite, and the positive news from China are allowing the AUDUSD pair to continue its rally. Another catalyst was the announcement of a 4% increase in corporate profits in China in April, reversing March’s decline.
The aussie is a proxy currency for the yuan and one that Bloomberg believes will strengthen. History shows that a rebound usually follows after the renminbi falls to the lower end of its +/-2% range against the US dollar.
Chinese renminbi fixed trading band deviation
Source: Bloomberg.
USDCNY and AUDUSD rates
Source: Bloomberg.
According to Credit Agricole, the AUDUSD is unlikely to move much higher or lower from current levels. The pair is likely to end the year at 0.68 as the RBA will be one of the last to cut rates.
The recent stimulus budget announced by the Australian Department of the Treasury may boost the economy and spur inflation. Against this backdrop, the RBA is likely to maintain a hawkish bias. Together with good news from China, high global risk appetite, and carry trade demand, the AUD has all the chances to continue its rally.
Monthly AUDUSD trading plan
The AUDUSD pair’s correction to 0.66 allowed traders to open more long trades, adding them to the ones opened at 0.6555 and 0.659. Once the price reaches the previously set targets at 0.675 and 0.69, you can close your long trades.
Price chart of AUDUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
