AUDUSD daily
AUDUSD daily

Synopsis:
HSBC has reaffirmed its bearish stance on AUD/USD, highlighting the pair's underperformance over the past three months. Despite the RBA's hawkish hold on rates, the AUD faced downward pressures, notably from a strong USD and gloomy risk sentiment. HSBC lists four primary reasons for maintaining their pessimistic outlook on the AUD/USD pair.

Key Highlights:

Current Dynamics of AUD/USD:

  • The RBA's decision to maintain interest rates showcased a continuity in policy under the new governor, Michele Bullock.
  • The AUD's depreciation was not deterred by the RBA's repeated mention of potential future monetary tightening, as it succumbed to a stronger USD and negative risk sentiment.
  • AUD-USD has been the G10 basket's lowest performer over the last quarter.

Factors Behind the Bearish Outlook:

  1. Interest Rate Divergence: Australia's OIS curve indicates aggressive rate hike expectations, while the US shows a more moderate outlook. HSBC predicts a convergence in rate expectations between the Fed and the RBA in upcoming quarters.
  2. China’s Real Estate and Commodities Market: HSBC anticipates muted improvements in China’s property sector, affecting the steel and iron ore markets, which in turn impact Australia's exports. With China's real estate index nearing its YTD low, it correlates negatively with AUD-USD movements.
  3. US Yield and Growth Advantage: The US's increasing yield advantage and sustained economic growth is anticipated to fortify the USD throughout 2024, potentially weakening the AUD further.
  4. Superfunds Hedging Strategy: Australian superfunds, given the headwinds to AUD-USD, might opt to decrease their high hedge ratios on foreign investments, foreseeing a further dip in the AUD.

Closing Thoughts:
HSBC's analysis projects caution regarding AUD/USD's future movements. Their forecast indicates a continued bearish trend for the pair, with significant influences stemming from monetary policy differences, China's economic situation, and broader global financial strategies. While the RBA's stance and internal Australian dynamics play a part, external factors, especially those connected to the US and China, are pivotal in shaping the AUD's trajectory.

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