The outlook for the Australian dollar for the rest of 2022 is positive thanks to optimism over commodity prices. However, if recession becomes a reality, then all of its optimism could suddenly turn sour.
In October the Aussie weakened after the Reserve Bank of Australia surprised the markets when they only raised interest rates by a quarter of a percent.
This was despite the fact that they had raised rates for 6 months in a row.
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CBA suggest the Aussie to move lower below US62¢. The bank had already lowered their forecast for the Aussie to fall to US62¢ by December as the slow down in the Chinese economy hits the price of many of Australia’s key commodity exports.
As predicted, the AUD’s traditional vulnerability to risk has left it exposed to a broader correction into October.
The Aussie dollar hit a recent high near US76¢ in early April but then has dropped back on global inflation and recession concerns.
Commodity-linked currencies such as the Aussie dollar had been moving up as Russia’s tragic invasion of Ukraine pushed up demand for oil and other natural resources.
The Aussie dollar rebounded from around US62¢ in October and November on the suggestion that the RBA would slow the pace of interest rate hikes.
However, economists are divided as to whether this change in fortunes for the Australian dollar will continue into the new year.
In the second quarter of 2020 AUD staged a rapid recovery through the months of April, May and into June up 25% from its mid-March lows to US70c in early June. This is due more to the perceived benefits to Australia of an awakening post-pandemic Chinese economy than the political-social situation in the US depressing the USD.
The Aussie had been savaged in March sliding to US55 cents the lowest since 2003. Growing fears of the coronavirus outbreak moved the market into safer currencies such as the USD and away from AUD, NZD and CAD.
The virus was a double blow to the Aussie after the earlier threat of proxy war between the US and Iran in Iraq had also pared back some of the gains the Aussie had made coming into the New Year.
The Australian dollar had started the new decade strongly climbing to multi-month highs helped along by cooling trade tensions between the United States and China and optimism for global economic growth in the year ahead.
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