The US dollar could remain stronger for a longer than expected period, warn analysts at Rabobank. They view the AUD/USD pair recovering to the 0.71 area in a six-month period. 

Key Quotes: 

“The AUD is struggling to push back above the 0.70 level against the USD.  The fall in AUD/USD from highs in the 0.76 area at the start of April to a low around 0.6829 earlier this month is suggestive of a sharp fall from grace for the AUD.  While we attribute much of this fall in the value of the Aussie to fears surrounding growth in China, the mightiness of the USD is also a factor.”

“The tightness of the labour market and the assumption that wages will continue to pick up have driven speculation that the RBA could up the pace of interest rate hikes. The minutes of the May RBA meeting highlight that both 15 bp and 40 bp hikes were considered this month.  This raises the possibly that the Bank could opt for a 40 bps move in June.”

“Looking ahead, we see scope for the USD to remain stronger for longer based on elevated safe haven demand stemming from global growth risks and a hawkish Fed.”

“We recently revised higher our forecasts for the USD across the board and see scope for AUD/USD at 0.69 on a 1 and 3 month view recovering to the 0.71 area in 6 months. Insofar as we see recession risks for the Eurozone in late 2022/early2023 (based on the assumption the EU will announce an embargo on Russian oil) and a painful cost of living crisis in the UK, we expect both the EUR and GBP to be on the back foot in the coming months.  This implies scope for the AUD to be better bid vs. European currencies in the coming months.”

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