Aussie Rally May Fade as RBA Set to Temper Hikes, Analysts Say
The Australian dollar’s rally may fade with the Reserve Bank of Australia set to signal a slower pace of interest rate hikes after a widely expected increase this week, according to top forecasters.
Trading at a modest premium to a short-term fair value of 69.4 US cents, the Aussie will need tighter RBA policy to hold above current levels, according to . sees it trading below 72 cents after the central bank likely ends its hiking cycle next quarter and the greenback rebounds. The Aussie closed at 72.02 cents on Friday.
The currency has surged this year, ranking as the second-best performer among Group-of-10 peers . Softer-than-expected inflation data last week and rising risks to economic growth from a prolonged Middle East conflict may prompt the RBA to slow its tightening cycle after Tuesday’s meeting, limiting further upside for the currency.
“The balance of short-term Australian dollar risks continues to swing messily,” said Richard Franulovich , head of FX strategy at Westpac Banking Corp. However a sustained break above 72 cents “still requires actual Strait reopening and an unlikely US acceptance of some sequencing on the nuclear issue, so that keeps Aussie ultimately capped.”
Still, a more hawkish tilt from the RBA may give the currency fresh momentum, some analysts say. If policymakers push back against stubborn inflation, still above the 2–3% target band and exacerbated by higher fuel costs tied to supply disruptions, the Aussie may have room to extend gains.
“In our view, the currency could reach 0.74 by year-end,” Bank of America strategists including Oliver Levingston wrote in an April 30 note. “A relatively hawkish RBA stance compared with the Federal Reserve should also provide support, alongside a modest boost from commodity export prices.”
Swaps markets have fully priced in two more interest rate increases, including Tuesday’s expected move, and have assigned a more than 50% chance of a third by year-end, according to Bloomberg-compiled data.
Meanwhile, the currency is expected to trade around 71 cents through to the third quarter before a slight lift toward year-end, according to the median estimate of strategist forecasts compiled by Bloomberg.
“Overall, the Aussie looks expensive,” said Stuart Bennett , head of G-10 currency strategy at Santander, the top forecaster last quarter. The RBA may hike just once more after Tuesday’s move, “and that might prevent the Australian dollar sustaining any jump.”
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