The base case is for a softer Australian dollar over time for analysts at Wells Fargo. However, they point out the risks appear tilted toward a smaller decline than their forecast of AUD/USD at 0.70 by the third quarter and at 0.68 by the end of the year. 

Key Quotes: 

“The economy is enjoying a solid rebound, and could prove more resilient than expected even in the face of the latest wave of COVID cases, a scenario that should offer some direct support for the Australian currency.”

“A resilient economy could also prompt the Reserve Bank fo Australia to end its bond purchases more quickly, and possibly signal earlier rate increases, both factors that would offer some support for the Australian dollar.”

“While not our base case, should Chinese growth respond in a strong positive fashion to policy easing from Chinese authorities, that would likely also be helpful for Australian dollar. In this more favorable scenario, the AUD/USD exchange rate could fall only moderately, perhaps not weakening much below the $0.7000 level.”

“We expect the RBA to hold its Cash Rate steady at 0.10% through all of 2022. However, we now see rate hikes beginning in early 2023, and expect a 15 bps rate hike in February next year, followed by 25 bps rate hikes in May, August and November.” 

This article was originally published by Fxstreet.com.Read the original article here.

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