Bank Of America Weigh In On Potential Upside

In light of an Australian corporate and investor client trip Bank of America note that “there is low near-term conviction on AUD FX but positioning remains underweight. Most feel the RBA's cautious stance is warranted, making a soft landing in Australia more likely than elsewhere.”

• “The main blind spot is the China reopening as a positive impulse for Australia - we note that while China reflation sentiment has improved, it has retraced just part of the decline since lockdowns intensified. Our economists expect growth to remain weak in the next few months but a rapid recovery from Q2 23 onwards.”
• “This aligns with our view that AUD/USD could stay close to $0.65 through Q1 but rally to $0.74 by end-2023. We are long AUD/USD 1-Year risk reversals - domestic underweight positioning suggests this eventual rally could be volatile.”