AUD/USD: Recovery to unfold later in the year – MUFG

The Australian dollar swung wildly in May. Economists at MUFG Bank expect continued fears over global growth will counter AUD strength in the short-term but believe that the AUD/USD is set to march forward later in the year.

Initial downside risks should subside later in the year

“Over the short-term, we continue to see risks of another correction lower with China growth weak and equity markets globally vulnerable to renewed selling.”

 “Later in the year, the slower growth scenario, declines in inflation and tighter financial conditions will likely mean the Fed can pull back from tightening to the extent currently priced. That will help lift AUD. This could well be reinforced then by an improving economic outlook in China. Assuming covid disruptions diminish, policy support in China should result in better economic conditions.”

“A new Labour government in Australia led by Anthony Albanese is unlikely to have implications for monetary policy. Policy differences with the previous government are not significant enough. Hence, initial downside risks should subside later in the year and result in AUD/USD gains.”