AUSTRALIAN DOLLAR Q2 FUNDAMENTAL OUTLOOK
The Australian Dollar has been weak against the US Dollar in recent years, including 2024. However, there may be some positive news for Australian currency bulls, mainly due to weakness in the US Dollar rather than strong economic performance in Australia. Rising US interest rates and the safe-haven status of the Greenback have negatively impacted the Australian Dollar. Despite the Australian economy performing better than some Western peers during difficult times, this is not reflected in the AUD/USD chart.
The US Federal Reserve is confident that interest rates will decrease this year, which has caused the value of the US dollar to decline. Meanwhile, the Australian Dollar has shown some improvement. Although Australian borrowing costs are currently high, the Reserve Bank of Australia is hesitant to make any changes until they are certain that inflation will reach their target range. The recent inflation numbers in Australia were lower than last year's peak but still above the RBA's mandate. Therefore, with the possibility of lower US rates and unchanged rates in Australia, the Australian Dollar is expected to receive some support.
Relations between Australia and China show signs of improving, but there are limits to this due to Australia's involvement in the 'AUKUS' defense arrangement with the United States and Britain, which China opposes.
SIGNIFICANT AUD GAINS MAY HAVE TO WAIT
The Aussie may receive support from a weaker Dollar and a less risk-averse market. The full effect may be seen later this year with expected Fed rate cuts. Australian banks predict AUD/USD to be above 0.70 by the end of 2024. If US inflation allows for planned Fed cuts, the Australian Dollar could stabilize and potentially rise cautiously.
The view that US rates will decrease may face risks. The length of time it takes for rates to go down could be longer than expected. Conflicts in Ukraine and Gaza have the potential to decrease risk appetite, even without any other issues arising. Additionally, the currency has been declining against the US Dollar since early 2021, and any increases this year are unlikely to reverse that trend.