USD/AUD Outlook:
The USD/AUD exchange rate is currently slightly weaker, positioned below its recent average and near recent lows, primarily driven by weaker US economic data.
Key drivers:
• Rate gap: The US Federal Reserve maintains a dovish stance on interest rates, while the Reserve Bank of Australia expresses a more hawkish approach, leading to differing currency attractiveness.
• Risk/commodities: The Australian dollar gains ground as commodity prices, particularly from China's recovering economy, boost demand for Australian exports such as iron ore.
• One macro factor: Recent inflation trends in Australia indicate persistently high prices, increasing the likelihood of further interest rate hikes from the RBA.
Range:
The USD/AUD is likely to drift within the recent range, with potential to test lower extremes.
What could change it:
• Upside risk: Strong US economic data could shift expectations for Fed rate hikes, supporting the USD.
• Downside risk: If the RBA's hawkish signals weaken or if commodity prices decline, it may pressure the AUD downward.
