AUDUSD: Recovery to 0.74 in Q3 remains likely – Westpac

The 0.68 level looks like the next obvious target for the aussie near-term. Nonetheless, the AUD/USD is expected to recover towards 0.74 in the third quarter, economists at Westpac report.

Equity turbulence could see a return to trade with the 0.68 handle

“The economic ripples from Russia’s invasion of Ukraine continue to underpin energy prices, strengthening the outlook for Australia’s already large trade surpluses. But the AUD remains at risk against a US dollar backed by the Fed’s determination to frontload rate hikes and shrink its balance sheet, a notably more aggressive tightening stance than the RBA (at least for now).”

“Daily correlations with equity markets are elevated even by the aussie’s historical standards, so any renewed equity turbulence could see a return to trade with the 0.68 handle (along with occasional squeezes higher).” 

“Recovery to 0.74 in Q3 remains likely. Australian growth should be swift in Q2 and Q3, supporting pricing for RBA tightening, while China’s policy focus will once again turn to infrastructure-led growth. And at some point, USD yield support will reach the cyclical peak.”