Is Pound Sterling the first major currency pair that the Australian dollar could dominate in 2023? According to Rabobank it’s the most likely candidate in the longer term but it will continue to face trouble in the first quarter of 2023 due to worsening local conditions here compared to old Blighty:
“There are signs that the Australian economy is faltering under the weight of higher prices and increased interest rates,” says Jane Foley, Senior Currency Strategist at Rabobank in London.
She cites Australian retail sales data for October which showed a drop for the first time this year. Rabobank finds Australia’s high levels of mortgage debt and a greater sensitivity to short-term interest rates mean that the pass-through from the RBA’s rate hikes this year will have been relatively swift.
“This has likely contributed to the RBA’s decisions to step back to 25bp increments in its policy tightening ahead of many other major central banks,” says Foley.
“Going forward, softer than expected CPI inflation for October and comments from RBA Governor Lowe that Australia may be better positioned than its peer to achieve a soft landing suggests that the central bank could be close to reaching peak interest rates. The step back in hawkishness from the RBA would normally translate to a currency negative factor, but expectations for a soft landing suggest that Australian fundamentals remain healthier than many of its peers.”
The bullishness is all about commodities and the opening up of China post-COVID, but that also has a double whammy effect if the recent news out of the Middle Kingdom about the nearly out of control virus is to be believed.
Rabobank are suggesting the Aussie dollar to be at 65, 66 and then 69 cents against USD in the next 3, 6 and 12 months while pushing a GBPAUD cross forecast that will drop down to 1.53, a near decade low:
The weekly chart does support a bearish rising wedge pattern that has recently broken, taking the cross back to its dominant downtrend, with a technical terminal target around the 1.60 level more likely. But this is all supposed on a recovery in China and iron ore prices, which had already peaked before the latest COVID lockdowns:
