Australian Dollar Q3 Fundamental Forecast

The Australian Dollar will end the year’s second quarter just about where it began against its big brother from the United States. That makes sense, perhaps, given the pervasive uncertainties faced by the global economy which have precluded big trading moves.

Moreover, given what we can know now, it must seem unlikely that the coming three months will see a decisive break of current ranges.

The strongest force acting on AUD/USD is of course the interest rate differential between the US Federal Reserve and the Reserve Bank of Australia. The optimistic scenario of multiple US interest rate cuts with which markets partied into 2024 is clearly history. There are dissenting voices, of course, but investors will now count themselves lucky if they see even one modest reduction before the end of December.

The US economy has proven too resilient to higher rates, inflation has proven too sticky. The problem for those traders who’d likes to see a bit more AUD/USD action is that Australia is in very much the same position. The latest polls show no expectation that the RBA will be trimming borrowing costs this year, as markets price in a potential discussion on the matter for the second half of 2025.

There’s still an outside chance that rates could rise again, as there is in the US, but the overwhelming majority sees monetary policy on hold at current, relatively high rates, until inflation durably wilts, followed by a very gradual, data-dependent process of cuts.

The upshot of this is that inflation data will remain the markets’ touchstones through the quarter, but absent any major shifts, they’re likely to be stuck with that scenario which could leave AUD/USD with nowhere much to go.

Global Growth Looks Healthier, But Major Doubts Remain

The other major factor at work for the Aussie is its link to global growth, especially via the commodity price cycle and China, to which Australia famously supplies vast amount of raw material. Here, again, we see enormous uncertainty. Economy watchers such as the World Bank reckon global growth is at last stabilizing for the first time in three years. However, slow recovery from the Covid pandemic, dislocated supply chains, conflicts in Ukraine and Gaza and widespread political uncertainties mean that this stability is fragile.

China’s economic momentum is also very clouded, with the real-estate sector still stricken and overall manufacturing momentum very hard to gauge.

Keep A Trading Eye on Commodities

Still, there are signs that commodity stocks are catching up with some of the broader equity vigor we’ve seen in the past three months, and a better outlook for the sector should probably lend some support to the Aussie.

Precious metal prices are forecast to retain their pep too, which might help the currency gain a little further given its correlation to the gold price. However, none of the above represents anything like a sure thing for Aussie bulls, and for as long as the interest rate differentials don’t change, the broad AUD/USD range isn’t likely to either.

https://www.dailyfx.com/news/australian-dollar-q3-fundamental-forecast-mixed-aud-outlook-as-china-s-growth-concerns-clash-with-resurgent-aussie-price-pressures-20240630.html