AUD forecast: Aussie stable, shrugs off RBA minutes

Australian dollar edges higher after RBA minutes, awaiting global central bank decisions

The Australian dollar (AUD/USD) edged up slightly on Tuesday, trading at approximately $0.648, with a largely subdued market response following the release of the Reserve Bank of Australia's meeting minutes.

These minutes revealed that the central bank had considered implementing another 25-basis-point interest rate hike in September, but ultimately opted to maintain the current rate at 4.1%. The board acknowledged that there were indicators, such as sluggish productivity growth and elevated inflation in service prices, supporting the argument for raising interest rates. However, these factors were ultimately overshadowed by the concern that the impact of a tightening cycle, only launched in May last year the previous year, are yet to be felt.

“The recent flow of data was consistent with inflation returning to target within a reasonable timeframe while the cash rate remained at its present level,” the minutes showed.

“Members recognised the value of allowing more time to see the full effects of tightening of monetary policy since May 2022, given the lags in the transmission of policy through the economy."

Furthermore, policymakers expressed concerns that the Australian economy might experience a more pronounced slowdown than anticipated, triggered by diminished domestic consumption and demand uncertainties from China, Australia's leading trading partner.

Investors remained cautious as they awaited crucial monetary policy decisions from the U.S. Federal Reserve, the Bank of England, and the Bank of Japan, all scheduled for this week.

AUD forecasts: Analysts see upside for Aussie

UOB Group Economist Lee Sue Ann and Markets Strategist Quek Ser Leang offered the following 24-hour view on the AUD/USD currency pair on September 20:

In a longer-term AUD/USD projection, the UOB analysts wrote:

In similar long-term forecasts, Australian bank Westpac forecast an AUD/USD exchange rate of 0.68 by June 2024, while National Australia Bank predicted AUD to be 0.71 to the US dollar by June 2024.

The forecasts were down from the bank’s projections last September, where Westpac was forecasting the Australian dollar to be worth 0.74 by June 2024, while NAB predicted 0.72 to the dollar for the same time period.

In their FX Snapshot, last updated on September 18, analysts at Citibank Hong Kong’s Wealth Management division wrote that the Aussie would likely outperform the New Zealand dollar in the short term:

Citi’s 3-month Australian dollar forecast placed the AUD/USD exchange rate at a potential average of $0.65, which could remain for the foreseeable future (6 to 12 months’ time), according to the bank. Citi’s long-term AUD forecast was bullish, projecting the AUD/USD pair to trade at a potential average of $0.76.

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