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Analysts at MUFG Bank, expect the AUD to depreciated further against the USD before rebounding. They see AUD/USD trading around 0.65 during the second quarter and at 0.67 by year-end. 

Key Quotes:

“The Australian dollar weakened further in February and on a year-to-date basis is 7.2% weaker and is ranked in the bottom three of G10 currencies along with NZD and NOK. It is hard to look much beyond COVID-19 developments over the nearterm for gauging the direction of AUD. The sharp depreciation so far this year looks to have factored in much of the downside risks related to a global demand hit. But the spread of COVID-19 beyond China obviously means the global demand hit could be more considerable. We see this virus risk as now a factor hitting growth not for one quarter but certainly two and the assumption of a V-shaped recovery is looking unrealistic. Hence, we now forecast further depreciation in March before AUD stabilises in Q2 and recovers modestly in H2 2020.”

“The RBA, who held off on a rate cut in February due to concerns over excessive lending in the housing market, may well now feel compelled to act given the escalation of cases of COVID-19 globally. The RBA’s current forecasts for real GDP growth are looking overly optimistic. Real GDP growth on an annual basis is forecast at 2.0% in June 2020 and then picking up to 2.75% by the end of 2020. These forecasts also assume current market pricing of one 25bp rate cut around mid-year. On these assumptions, inflation only manages to get to 2.0%, the bottom of the accepted range, by December 2021. Given these projections we expect a rate cut by the RBA – near-term AUD risks remain to the downside, but we expect some modest AUD recovery in H2 2020.”