USD/AUD Outlook: Likely to decrease, as the rate is near recent lows and facing significant pressure from multiple factors.
Key drivers:
• Rate gap: The Federal Reserve is expected to implement rate cuts in 2026, while the Reserve Bank of Australia is signaling potential interest rate hikes due to rising inflation risks.
• Risk/commodities: The AUD has strengthened against the USD, supported by high metals prices and strong employment data, while the USD weakens amid geopolitical tensions.
• One macro factor: The upcoming core PCE price index will be closely watched, as persistent price pressures could affect expectations around Fed rate cuts.
Range: Movement within the three-month range is likely to drift as focus remains on economic signals from both countries.
What could change it:
• Upside risk: A positive surprise in upcoming US labor market data could strengthen the USD.
• Downside risk: Deterioration in China's economic recovery could further dampen demand for Australian exports, impacting the AUD negatively.