Analysts at Wells Fargo expect the Australian dollar to soften in the quarters ahead, although they see the potential for some stabilization in early 2023. They forecast AUD/USD at 0.72 by the end of the third quarter. 

Key Quotes: 

“While the economy saw a strong rebound in Q4-2021 and is experiencing a tight labor market and resilient consumer sector, confidence indicators have shown some deterioration recently. Even in the context of strong jobs growth and rising underlying inflation trends, the Reserve Bank of Australia (RBA) maintains a patient stance, and we expect an initial 15 bps rate hike to occur in November of this year, bringing the Cash Rate to 0.25%. In our view, RBA rate hikes should still lag behind a hawkish Federal Reserve and fall short of the rate hikes currently priced by financial markets.”

“Our base case is for the Australian dollar to weaken moderately in the quarters ahead. However, we believe the risks are tilted to the upside, as it is possible that there will be a smaller decline in the currency than our base case forecast suggests.”

“Recent labor and consumer trends have been encouraging. If the economy proves to be more resilient than expected despite a softening in sentiment, this should provide some support for the Australian dollar. More persistent elevated underlying inflation could also prompt the Reserve Bank of Australia to raise rates earlier and faster than currently expected, which would provide further support the currency.”
 

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

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