This info comes via eFX.
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Synopsis:
CIBC projects the Australian dollar (AUD) to strengthen against the US dollar (USD) and face limited upside against the New Zealand dollar (NZD) in the fourth quarter. This outlook is influenced by the Reserve Bank of Australia's (RBA) shift to a more neutral stance, stronger AUD performance due to China stimulus, and differing monetary policies between Australia and New Zealand.
Key Points:
- RBA's Shift to Neutral Stance:
- In September, Governor Bullock indicated a more neutral monetary policy by not explicitly considering a rate rise.
- The RBA noted easing wage pressures and shifted the outlook to acknowledge two-way risks to policy rates.
- Inflation and Rate Cut Expectations:
- August CPI for Australia fell to 2.7% YoY from 3.0%, within the RBA’s target band of 2-3%.
- The RBA expects CPI (excluding cost-of-living relief) to return to target range by 2026, delaying potential rate cuts until February 2025.
- The RBA does not foresee an immediate rate cut due to expected short-term CPI decreases from government relief measures.
- Impact of China Stimulus:
- Recent Chinese stimulus measures have strengthened the AUD, as the currency is viewed as a proxy for China risk sentiment.
- Australia's resilient services sector has contributed to the RBA's relative hawkishness.
- AUD/USD Outlook:
- CIBC forecasts AUD/USD to rise to 0.71 in Q4, driven by stronger AUD performance linked to positive China headlines and sustained RBA policies.
- AUD/NZD Dynamics:
- Despite a recent decline from late July highs of 1.11, long positions in AUD/NZD remain popular due to the hawkish RBA versus dovish Reserve Bank of New Zealand (RBNZ).
- CIBC expects AUD/NZD to peak at 1.0950, noting that large Fed rate cuts would benefit the NZD more than the AUD.
Conclusion:
CIBC maintains a bullish outlook on AUD/USD, targeting 0.71 in Q4, supported by China's stimulus measures and the RBA's stable stance. However, AUD/NZD is expected to encounter resistance, peaking at 1.0950, as the NZD is likely to outperform the AUD in the face of significant Fed rate cuts. Investors should monitor China’s economic developments and upcoming RBA signals to navigate these currency pairs effectively.
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Reserve Bank of Australia Governor Bullock
