AUD

A more bearish scenario could play out if China’s economic troubles endure and stimulus supports fail to take hold. A soft growth pulse would be a negative for commodities and risk sentiment and could weigh on growth-linked currencies. Domestically, the jump in mortgage rates could also raise financial stability concerns given elevated household debt burdens and the banking sector’s property market exposures. A spike in unemployment generated by a sharp economic slowdown could also trigger adverse non-linear outcomes. Real gross domestic product, annual % change

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,...