BNY’s Head of Markets Macro Strategy, Bob Savage, observes that the Australian Dollar (AUD) is approaching the Reserve Bank of Australia (RBA) meeting with one of the most aggressive policy profiles among G10 currencies, yet has not experienced a surge in inflows despite its liquidity and ratings advantages [1]. Savage notes that AUD/USD has outperformed broader AUD aggregates, with last week marking three consecutive days of inflows above 1.0 in flow magnitude—the first such streak this year [1]. However, intense AUD cross flows, particularly in January, have weighed on the currency’s aggregate performance relative to the AUD/USD pair [1].
Savage suggests that confirmation of current RBA pricing could further lift the AUD, even as expectations for Federal Reserve easing are being priced out [1]. He points out that Australia is one of the few economies positioned to benefit from a terms-of-trade shock, which could support the AUD against other G10 currencies [1]. Despite the strong policy profile, the lack of surge flow into AUD remains surprising, given its liquidity and ratings advantages [1].
Looking ahead, Savage indicates that if the RBA affirms its current pricing while other G10 economies struggle with stagflation, AUD’s aggregate averages could improve markedly [1]. However, he also cautions that as Fed easing expectations diminish, AUD/USD may face challenges [1].
CONCLUSION
The Australian Dollar is demonstrating resilience ahead of the RBA meeting, supported by a hawkish policy stance and recent inflows. While confirmation of current RBA pricing could boost the AUD, market participants remain cautious as Fed easing expectations are priced out. The currency’s performance may improve if the RBA maintains its stance and other G10 economies face stagflation.