NAB: Trying Times Ahead, But Fundamentals Are Solid

NAB note that “fat tail risk identified in previous research notes have now become part of our central scenario, instigating downward revisions to our AUD/USD outlook. Namely, no near-term end to the Russia-Ukraine war and implicit energy crisis for Europe as well as an Omicron/zero-covid policy induced China slowdown.”

• “The Australian economy is better placed than many to weather the near term global economic headwinds. Australia is an energy exporting country, the economy has strong domestic economic drivers supporting the outlook this year and now the RBA has finally joined the tightening club. Still, as a small and open economy Australia and the AUD will be susceptible to global economic fortunes and increase in market volatility.”
• “We now see AUD/USD tracking largely inside a $0.70 to $0.75 range through year-end, but with a high risk of forays below $0.70. Technically, we should then allow for prints as low as $0.67, though if seen we would expect them to prove temporary. An improvement in China’s growth outlook or prospect of a resolution to Russia-Ukraine tensions would help the AUD test levels near 75c again, but neither are seen as eminent.”