Why ING expects a big rebound in AUD/USD before year-end

ING presents its views on the AUD/USD exchange rate, expressing confidence in a notable rebound in the Australian dollar by the end of the year. The bank’s bullish outlook is based on various factors, including expectations of continued monetary tightening by the Reserve Bank of Australia (RBA), potential surprises in inflation data, and the perceived undervaluation of the Australian dollar.

RBA’s Monetary Tightening

ING does not agree with the view that the RBA has concluded its monetary tightening process. They argue that the market may be underestimating the possibility of another rate hike, which they consider as their base scenario.

Potential Inflation Data Surprise

A potential surprise in Australia’s monthly inflation data could pave the way for another rate hike. ING considers this a possibility as early as September, signaling a key driver for the AUD’s recovery.

Recovery in the Australian Dollar

ING views the Australian dollar as undervalued in the short and medium-term. They believe the currency has absorbed the negative effects of China’s growth rerating and recent global sentiment instability, thereby opening room for a recovery.

Target for AUD/USD

ING is targeting a return to the 0.69 July peak in the fourth quarter for AUD/USD. They see substantial room for a recovery in the exchange rate, in line with their expectations for a decline in the US dollar.

Key Points:

• Expectation of RBA Tightening: ING’s analysis anticipates further monetary tightening by the RBA, contrary to some market beliefs.
• Inflation Data Could Surprise: A surprise in monthly inflation data might drive another rate hike as early as September.
• AUD Undervalued: ING sees the Australian dollar as undervalued, having absorbed negative implications from various factors.
• Bullish Target for AUD/USD: ING’s bullish target for AUD/USD is a return to the 0.69 level in Q4 2023.

Conclusion:

ING’s expectations for AUD/USD are rooted in a strong belief in further RBA tightening, potential inflation data surprises, and the AUD’s current undervaluation. They predict a significant recovery in the currency pair before year-end, targeting a return to July’s peak. The bank’s bullish view stands as a notable contrast to some market sentiment, reflecting a more nuanced analysis of the monetary policy environment and the fundamental factors influencing the Australian dollar. Market participants may find these insights valuable in shaping their own views on the direction of AUD/USD in the coming months.

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