AUDUSD: TOUGH FINANCIAL MARKET CONDITIONS WILL WEIGH ON THE AUSSIE BEFORE RECOVERY CAN TAKE HOLD – MUFG

During June, the Australian dollar depreciated against the US dollar from 0.7167 to 0.6888. Beyond some near-term challenges, the outlook for AUD is better. Therefore, economists at MUFG Bank expect the aussie to recover by the end of the year.

GLOBAL GROWTH CONCERNS ARE BEGINNING TO WEIGH MORE ON AUD

“We see risk potentially deteriorating further with corporate earnings coming under pressure, corporate credit worsening and inflation remaining elevated over the short-term. The speed in which the Fed and other central banks are now hiking will have a negative impact on risk, the global growth outlook and hence AUD.”

“Easier policy in China and the lift to growth as lockdowns end should boost AUD demand into year-end and in 2023. By then too, the inflation angst undermining investor confidence should also have eased and with by then asset prices more aligned with downside growth risks, there will be scope for some AUD recovery.”

“The market is currently priced for around 225 bps of RBA rate hikes which we do not believe will be delivered. But it will be similar for the Fed as well and that will be the catalyst for some broader reversal of US dollar strength, helping lift AUD/USD.”