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NAB think “the USD has not yet peaked given a hawkish Fed and rising concerns over an imminent global recession (with Europe’s Russian energy dependency and China’s zero-COVID strategy major headwinds). The U.S. is better placed than other economies to withstand an economic slowdown, indeed this economic backdrop is allowing the Fed to retain its aggressive stance in its quest to bring inflation to heel. Our stronger for (still) longer USD view implies a more extended period below $0.70 for AUD/USD with the currency seen broadly contained in a $0.65-0.70 range over coming quarters. From a valuation perspective, longer-dated hedging from Australian exporters and reassessment of FX hedges by asset managers should become a consideration should levels at or below 0.65 be seen (a potentially AUD supporting influence). Given its risk sensitive nature, AUD will remain vulnerable to further weakness on the view that significantly slower global growth, whether or not the world falls into the outright recession, is not yet adequately priced into risk assets. We now see the AUD back above the $0.70 mark, on sustained basis, only from around the middle of next year. This view is contingent on our assumption that we will eventually see a reconnection between the AUD and commodity prices once the USD begins a cyclical decline following Fed success in its anti-inflation pursuit.”

MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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