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The AUD only had a modest gain against the USD over the past month, underperforming most other G10 currencies. Despite a dovish Reserve Bank of Australia, economists at HSBC still see potential upside in the aussie this year due to strong domestic fundamentals and a relatively supportive global backdrop.

Australia’s sizable budget and its relatively low debt level i to provide further support for the aussie

“Looking ahead, strong domestic fundamentals and a relatively supportive global backdrop should support the AUD. Australia’s current account position has continued to improve, and the surplus has moved even higher in recent quarters. Much of this strength could be attributed to increasing commodities prices. As the global recovery gathers further steam, demand for commodities is likely to remain firm, supporting Australia’s terms of trade and current account balance. This is likely to remain a bullish feature for the AUD. A global recovery also bodes well for risk appetite, which will be AUD positive.”

“As long as data beats expectations, the AUD should trade relatively well as markets increasingly price in a less dovish RBA. Yet, even if the domestic economy performs poorly, with markets already expecting a dovish RBA, the AUD may find itself maintaining the status quo.”

“It is also worth noting that the Australian government has announced a rather sizeable budget, with net debt projected to rise from 30% of GDP in 2020/21 to 40.9% of GDP in 2024/25. This would be growth supportive and is likely to further support the AUD, especially given the relatively low level of debt Australia has compared to many of its G10 peers. Overall, we expect the AUD to strengthen further against the USD this year.”