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A U-shaped recovery in global growth will see more near-term volatility in the AUD but structura drivers are set to strengthen the aussie steadily in the longer-term, per HSBC.

Key quotes

“The recent rebound in risk appetite may reflect hopes of a V-shaped bounce in global activity. Nevertheless, our central scenario remains a U-shaped recovery in global growth. We believe there is likely to be a period of uncertainty, as the economic rebound could take some time to emerge and may offer occasional false hope. The AUD is still vulnerable to short-term swings in risk sentiment.”

“The AUD is well-placed to benefit from a shift towards fiscal policy as the main tool for providing economic support, given a low starting level of government debt, especially compared to the US, the Eurozone, Japan and the UK.”

“With policy rates anchored everywhere, the focus has shifted to the debasing impact of unconventional monetary policies on FX. The AUD is a relative winner with the slowest pace of central bank balance sheet growth in the G10 space.”