AUD

Relative to our central case, a bearish scenario for the Australian dollar might stem from a deeper and more prolonged economic slump. A more significant slowdown is likely to flow through more negatively into commodity prices and risk assets, and weigh on growth-linked currencies. In a similar vein, a protracted period of high inflation could prompt central banks to continue to raise interest rates in the face of slowing activity and weakening labour markets, fanning the flames of financial stability concerns. This is particularly relevant for Australia, given the household sector’s high debt burden and the banking sector’s exposure to...

We are looking for the Australian dollar’s volatility to continue through the third quarter. We see the exchange rate oscillating in a 0.65-0.69-cent range as various crosscurrents play out. The list includes more market turbulence, global and Australian recession fears, China’s stumbling recovery and weaker renminbi, narrower interest rate differentials, the flow support from Australia’s current account surplus (circa-1.4 percent of gross domestic product), and solid underlying commodity demand from the global green energy push. But beyond the next few tricky months, our underlying view continues to be for the Australian dollar to edge up into the low 0.70’s by...