AUD/USD slipped around 9% in the second quarter. The pair approaches the July Reserve Bank of Australia (RBA) meeting with mostly headwinds. Therefore, even in the event of a hawkish surprise, economists at ING expect very limited benefits for the aussie in the near term.

Major headwinds for AUD to persist

“A significantly weakened link between domestic monetary policy dynamics and AUD/USD suggests that a rebound towards the 0.70 mark is unlikely to materialise soon even in the event of a hawkish surprise by the RBA (markets are not fully pricing in a 50 bps hike).”

“A more aggressive RBA tightening can suggest a wider room for AUD/USD recovery towards the end of this year and the start of next year (assuming that’s when market sentiment begins to recover), but a number of other factors – especially related to China’s demand and the USD outlook – will continue to be playing a big role too. All this makes any consideration about the AUD outlook purely based on rates dynamics still reductive.”

“Our baseline scenario for now is a gradual return to above-0.70 levels in AUD/USD for the remainder of the year, with most gains likely concentrated in 4Q, when the USD could start giving up some gains.”

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

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