The Australian Dollar (AUD) has struggled against the US Dollar (USD) for the past few years. However, there are signs that the AUD may be poised for a rebound, driven by a potential weakening of the USD rather than significant improvements in the Australian economy.
Previously, rising US interest rates and the USD’s safe-haven status weighed heavily on the AUD. While the Australian economy has fared better than some Western counterparts during recent global uncertainties, the AUD/USD exchange rate hasn’t reflected this strength.
Looking ahead, the US Federal Reserve is now anticipating interest rate cuts later this year. This has weakened the USD and boosted riskier assets like the AUD. Australia’s interest rates remain high to combat inflation. The Reserve Bank of Australia (RBA) is likely to maintain rates until inflation falls closer to its target range.
Despite ongoing domestic inflation, the AUD is finding some support from the prospect of lower US rates compared to Australia’s steady rates. Additionally, there are tentative signs of improvement in Australia’s relationship with China, a key trading partner. However, this progress may be limited due to Australia’s involvement in the AUKUS defense pact, which China opposes.
Source: https://www.dailyfx.com/