AUD/USD: Downside risks are still quite elevated amid external challenges – ING

The Reserve Bank of Australia (RBA) duly delivered the 50 bps rate hike expected. In the opinion of economists at ING, rates may now increase at a slower pace over the remainder of the year, and AUD may struggle to recover amid external challenges.

AUD remains vulnerable

“The RBA policy has not been a major driver of AUD moves since the start of the year and today’s quite muted reaction to the 50 bps rate hike is another case in point. Incidentally, a switch to 25 bps rate increases from now on may force some dovish re-pricing in the RBA rate expectation curve.”

“As external factors – in particular risk sentiment and China’s outlook – remain key for the AUD outlook in the near-term, downside risks are still quite elevated.”

“Our forecasts for AUD/USD still embed a small recovery by year-end but are mostly justified by USD seasonal weakness in December and any rally may still struggle to go far beyond the 0.70 mark.”