End year predictions about the next year are starting to flood the airwaves, and for the Australian dollar its about the clear struggle between the continually dovish she’ll be right mate, no worries RBA versus the ZOMG – inflationistas at the US Federal Reserve as they take the foot off the “gas” that is their QE program and start raising rates.
Westpac’s Sean Callow, reckons this approach means more downside for the Pacific Peso, but Rahul Khare at ANZ is more sanguine:
“[Continued QE by the RBA] will chip away at the Aussie, given that the US Fed would have completely wrapped up its programme by March,” he tells Capital.com.
While the European Central Bank wrestles with rising inflation, Rahul Khare, FX analyst at ANZ Research, says that the outlook for Australia is more positive.
“At this stage, we feel Australia is unlikely to be caught up in the global rise in inflation in the first half of next year, because supply side friction is less intense and wages growth fairly contained,” he says.
Westpac’s Callow agrees and said that even the RBA is not convinced that the “lengthy period of slow wages and below target inflation in Australia is over”.
“We do not have 5-6% inflation in Australia. Core inflation, which really should be all that matters, is barely above 2%. Wages are at a similar two and bit percent,” says Callow.
No worries about inflation then hmm? Luckily there’s no external shocks predicted for 2022. Analysts all over are predicting a strong economic recovery in calendar 2022, but will that be enough to offset the raising of rates across the US and possibly Europe as they tackle the inflation genie?
The 2022 forecasts are not that impressive however, with 73 cents the end year target for Westpac, and 75 cents for ING, still well below the last cyclical highs at 77 cents vs USD post the first COVID response:
Given the historical inability of the RBA to react to macro situations, perhaps a forecast without the number 7 in it is more appropriate for 2022?