On Tuesday, the Reserve Financial institution of Australia (RBA) raised rates of interest by 50 foundation factors to 2.35%. Analysts at Wells Fargo see the RBA making additional fee hikes within the close to time period however at a slower tempo, which ought to weigh on the Australian greenback. They level out that dangers within the AUD/USD change fee are titled to the draw back.
“Strong development however uncertainty concerning shopper and family tendencies amid excessive inflation reinforces our view for continued fee hikes from the RBA, albeit at a slower tempo than the current 50 bps per assembly development.”
“Our outlook for smaller magnitude fee hikes shifting ahead has implications for the Australian greenback’s path as effectively. We anticipate the Australian greenback to melt via the tip of 2022, earlier than a rebound as 2023 progresses. With our expectation for the RBA to hike charges at a 25 bps tempo starting in October, and because the Federal Reserve maintains its hawkish method, RBA fee hikes ought to lag the Fed’s and in addition fall wanting financial tightening at present priced by monetary markets. This could contribute to Australian greenback softness versus the buck via the tip of this 12 months and maybe into early 2023.”
“The dangers might be tilted towards much less weak point within the Australian greenback than at present anticipated, as inflation pressures may lead the RBA to ship bigger fee hikes regardless of uncertainty surrounding the patron sector. We see prospects for Australian greenback power to enhance as 2023 progresses, given we anticipate the USA to fall into recession and the Fed to chop rates.”