AUD/USD: RBA-induced rally to stall around the 0.73 area – ING

The Reserve Bank of Australia (RBA) is set to hike rates next week. However, any positive impact on the aussie may be offset by a challenging external environment, economists at ING report.

Positive impact on AUD may not last long

“If our expectation for a 40bp hike proves correct, AUD is looking at some decent upside potential next week. The market’s pricing further down the road is, however, more aggressive (around 240bp worth of hikes), and while the notion of front-loaded tightening can offer support to the currency in the near term, it can limit the room for appreciation in the longer run.”

“Looking at the coming weeks, there is a risk that the impact from an RBA hike may prove a one-off positive event for the aussie, as the external environment remains highly challenging for the currency, due to its high beta to: 1) China’s covid crisis and the negative implications for the demand outlook in the region; 2) Global risk sentiment as markets grow increasingly concerned of a global slowdown; 3) Fresh weakness in iron ore prices.”

“Adding some limited USD downside risks as the Fed starts a more aggressive phase of monetary tightening, we think any RBA-induced rally in AUD/USD may stall around the 0.7300 area if it even reaches such levels.”

“Contrasting factors suggest a flattish profile in AUD/USD into the summer.”