The recent dovishness of the Reserve Bank of Australia (RBA) has barely dented the AUD as yield differentials are stable and positive global drivers outweigh domestic monetary actions. With market expectations of a global economic recovery, economists at HSBC expect the AUD to strengthen against the USD this year.
Key quotes
“The RBA is simply matching its QE programme and forward guidance to that of other central banks, including the Federal Reserve. This neutralises the FX impact and is consistent with our view that rate differentials will play a much smaller role for the AUD than in recent years.”
“Individual monetary policy actions are dwarfed by bigger global drivers. Market expectations of a global economic recovery are undoubtedly bullish for the AUD and are increasingly showing up in a boost to Australia’s export commodity prices, which are up 18% in USD terms over the past two months alone.”
“The key question for the AUD outlook is to assess whether the global growth tailwinds will remain supportive, not to speculate over what the RBA might do next. For now, we believe that the USD is still in a modest cyclical downtrend and AUD/USD is likely to increase gradually this year, as Australia’s terms of trade are higher than 2018, the last time the currency pair was above the level of 0.80.”
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