AUD forecast: RBA pause sends Aussie to 11-month lows

"The RBA kept rates on hold as Michele Bullock made her debut as Governor. Markets are pricing in around 10 bps of tightening by December. We are more hawkish than the general consensus, seeing non-negligible chances that a CPI surprise will force one last hike to the peak.

Ultimately, even another hike would not be a game changer for the Aussie.

The sharp rise in US yields and soft risk environment should keep AUD/USD under pressure for now.

Risks are now that the correction extends to 0.6200/0.6250.”

"[The Australian dollar] has come under further pressure as the RBA held rates on hold for a fourth straight month. The RBA wording in the statement following the announcement was very similar to previous months suggesting that rates could be on hold from here.

Very simplistically — given the interest rate differentials between Australia and the USA, people will buy the [US dollar] for the yield [return] advantage it carries over Australia.

RBA cash rate is at 4.10 per cent [while the Federal Reserve] funds rate is at 5.375 per cent."

“While the market has not ruled out another hike by the RBA, interest rate differentials have been a key factor in pushing AUD/USD lower since July as the market finally adjusts to the higher for longer mantra from the Federal Reserve.

Concerns that slower growth in China will feed back into its major trading partners are also a negative AUD factor, though iron ore prices have remained well supported after their spring dip.

In view of the strength of the USD, we see risk of a push lower to AUD/USD 0.62 on a three-month view.”

“If US yields continue to grind higher it is very likely that we will see lows around where we got to last September/October time (0.6200).

Whether China developments reinforce the move lower or help support AUD remains unclear but at this juncture, we see the China pessimism as likely to continue over the short term which will likely add to downside pressure for AUD/USD.

If we do go lower in AUD/USD we would expect the move to reverse as US economic activity slows into year-end and China policy stimulus starts to show through in China data.”

“After four meetings with unchanged interest rates, there is certainly not too much to be said for a surprising rate hike in November. However, this mainly depends on the data published until then. Among other things, the quarterly inflation figures are on the agenda at the end of the month.

Regardless of the question of whether there will be another rate hike, however, the focus is likely to shift increasingly to the further outlook. And in view of the still elevated inflation, the robust labor market and currently solid growth, there is much to suggest that the RBA will not lower interest rates next year for the time being. This should also benefit the Aussie in the medium term.”

“Higher nominal wages, a large stock of excess savings and a strong labor market still raise upside risks to spending and growth for the remainder of the year which leads Citi analysts to retain one final rate hike in December of 25bps to take the RBA cash target to 4.35%.

Tactically, a bullish AUD view may still be expressed via a short GBPAUD cross that has started to trend down since late August. More medium-term view, AUD outperformance vs. NZD and CAD looks more likely.”