We see the Australian dollar edging higher over the next few quarters. This stems from our assessment that the US dollar should gradually lose ground, as growth differentials move against the US following a period of exceptionalism, as tighter conditions crimp activity, and Chinese stimulus measures gain traction, spilling over positively elsewhere. At the same time, on the back of our assessment that the Reserve Bank of Australia may be slower to move and/or deliver less interest rate relief than its peers elsewhere, short-dated yield differentials are expected to shift in support of the Australian dollar. According to our projections, the currency should drift up to $0.69 by mid-2024 and on to ~$0.71 by year-end.
Australian Dollar and Australia-US Yield Spread