CBA Mark AUD/USD Forecast Lower

CBA now expect “AUD/USD to decrease a little further, to below $0.6000 for a period. A stronger USD is an important part of our weaker AUD/USD outlook. Weaker commodity prices and more negative interest rate differentials between Australia and the U.S. will also weigh on AUD/USD in our view.”

• “We estimate fair value for AUD/USD is currently in the range of $0.70‑0.80, centred on $0.75. Assuming Australian commodity prices decrease by another 20%, the Australia minus U.S. 2 year OIS differential widens to ‑1% and the VIX increases to 40pts, the fair value for AUD/USD can fall to a range of $0.60‑0.68, centred on $0.64.”
• “Irrespective of trends in fair value, we expect AUD/USD to remain undervalued given the uncertainties in the Chinese economy, and the world economy more broadly.”
• “We expect the FOMC to start cutting the Funds target rate in Q4 2023. Normally, AUD/USD decreases when the FOMC cuts the Funds rate. But we expect Chinese economic growth to be accelerating by then. Therefore, we expect AUD/USD to start a recovery mid‑2023. The risk is the Chinese recovery is delayed, which in turn delays the recovery in AUD.”
• “The risks are not one‑sided. A medium-term positive for AUD are capital inflows to finance the sustainable capex boom in Australia and around the world. However, the potential for another mining boom is over the horizon rather than in the near term.”