Rabobank’s Senior FX Strategist Jane Foley highlights that the Australian Dollar (AUD) has shown a modest upward trend against the US Dollar (USD) since July, primarily due to a softer USD rather than AUD-specific strength, as the currency remains mid-pack among G10 peers [1]. The key drivers for AUD/USD have been shifting market expectations regarding further Reserve Bank of Australia (RBA) rate hikes, particularly following strong Australian labour data and a softer Q2 Consumer Price Index (CPI) [1].
Foley notes that there is still a risk of one more RBA rate hike in November, and Rabobank has raised its 3-month AUD/USD forecast to 0.71 from 0.70, reflecting a modest upside bias over the next 12 months [1]. The outlook is based on expectations of a moderately softer USD and the belief that market pricing for US Federal Reserve rate hikes may be excessive [1].
While the recent release of Australian trade data exceeded expectations and highlights positive structural developments in the economy, Foley suggests that near-term movements in the AUD will continue to be dominated by RBA policy guidance, particularly at the upcoming August 11 policy meeting [1]. The market is expected to look to this meeting for greater clarity on the likelihood of further rate hikes [1].
Overall, the market implications are centered on the interplay between RBA policy expectations and US dollar trends, with the potential for further AUD gains if the RBA signals additional tightening or if the USD continues to soften [1].
CONCLUSION
Rabobank anticipates a modest upside for the Australian Dollar over the next year, driven by a softer US Dollar and the possibility of further RBA rate hikes. The market’s focus remains on upcoming RBA policy guidance, with the August 11 meeting seen as pivotal for near-term AUD direction. Strong trade data supports the outlook, but monetary policy remains the primary driver.