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Economists at Rabobank see an increased probability of a rate cut from the Reserve Bank of Australia (RBA). This leaves the aussie at the mercy of economic data and due to its relationship with China and links to commodities, they forecast an AUD/USD pullback to 0.71 over the next six months.

See: AUD/USD to extend the rebound towards 0.73 – Westpac

Key quotes

“Our expectation that the greenback can manage a moderate recovery in the coming months leaves the AUD more vulnerable than many other G7 currencies to a correction. Through its links to commodity prices and its strong trading relationship with China, the AUD is sensitive to fears about global growth and to flows in and out of EM.”

“Having cut rates to 25bp early in the COVID-19 crisis, it had appeared that the RBA initially had little appetite for further moves. In September Deputy Governor Debelle referred to the possibility of a rate cut that kept rate positive as ‘possible’. It is conceivable that the RBA could cut rates potentially to 0.1%. Whether or not this happens depends crucially on labour market, wage and price developments in the coming months. However, with so much slack in the global economy, we would judge that such a move could be considered as ‘likely’.” 

“Given that the prospect of further RBA policy moves is on the table, the AUD is set to be more sensitive to economic data releases. The RBA policy meeting on October 6 is likely to be insightful. We see scope for AUD/USD to pull back to 0.71 on a six-month view.”