AUD/USD: A return to the 2021 0.80 highs seems quite unlikely in 2022 – ING

While the Australian dollar may benefit from being undervalued and oversold, positioning for recovery here remains a high-risk proposition, in the opinion of economists at ING.

Room to rise, but big downside risk

“We expect a solid rebound in unemployment and while a sharp rise in wage growth is not guaranteed, inflation should remain within the 2-3% RBA target in 2022. The growth outlook is blurrier as many headwinds may come from China.” 

“We think the RBA will taper asset purchases and end QE before the end of 2022. The first hike may only come in early 2023, although risks are skewed towards an earlier move. Still, the market pricing (75bp of tightening in the next 12 months) is too hawkish in our view.”

“We expect a moderate net-negative impact of commodities on AUD in 2022.”

“AUD is the most undervalued (-11%) G10 currency against the USD, according to our medium-term BEER model. AUD is also the most oversold currency in G10 and has the widest room to benefit from short squeezes in risk-on periods. A return to the 2021 0.80 highs in AUD/USD seems quite unlikely in the next year.”