AUD/USD: Recent gains built on shaky foundations – MUFG
29.10.2021, 16:50

AUD/USD: Recent gains built on shaky foundations – MUFG

Market expectations for aggressive rate hikes next year from the Reserve Bank of Australia (RBA) are likely to be disappointed, according to analysts at MUFG Bank. They argue recent outsized gains of the Australian dollar are built on shaky foundations.

Key Quotes:

“At the same time the AUD has derived support from the aggressive repricing of RBA rate hike expectations.”

“Next week’s RBA policy meeting (Tues) will be closely watched to see if they make any policy adjustments and/or push back more strongly against early rate hike expectations. While we can anticipate the RBA bringing forward rate hike plans from the current guidance for no hikes before 2024, it is one hell of a long shot to expect the RBA to completely capitulate and start planning for hikes as soon as next year and joining the Norges Bank, RBNZ, BoE, BoC and Fed.”

“The RBA remains concerned that underlying inflation pressures have been uncomfortably low over the last six years averaging only around 1.6%Y/Y. Similar to the ECB, we do not expect the RBA to be in a rush to respond to the current period of higher inflation.”

“We doubt that recent AUD strength can be sustained beyond the near-term. Market expectations for RBA hikes next year will be disappointed while the Fed starts to raise rates, and the negative growth impact from real estate weakness in China will become bigger weight on the AUD going forward as well.”
 

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