USD/AUD Outlook: The outlook for USD/AUD is slightly weaker, but likely to move sideways, as it is currently below its recent average and lacks a clear driving force.
Key drivers:
• Rate gap: The Federal Reserve has paused rate cuts, maintaining a stable policy, while the Reserve Bank of Australia is expected to consider a potential rate hike due to rising inflation expectations.
• Risk/commodities: The Australian dollar is under pressure from falling commodity prices, particularly precious metals, which affects its attractiveness as investors reassess risk-sensitive assets.
• One macro factor: Weak factory activity reported in China's latest manufacturing PMI could further drag on the AUD, as Australia’s economy relies heavily on Chinese demand for exports.
Range: Movement is likely to hold within the recent three-month range as both currencies navigate mixed signals in their economic conditions.
What could change it:
• Upside risk: A strong recovery in commodity prices could boost the AUD.
• Downside risk: A deterioration in US economic data may intensify market concerns about the USD.
