The Australian dollar has benefited from the surge in commodity prices and the sharp repricing in local rate expectations. Economists at HSBC remain optimistic, but the AUD may be getting closer to the end of its rally as two potential factors might start to cap some gains in the aussie.

Australia’s rate hikes now appear very well priced and higher commodity prices could backfire later

“The rate market has about 200bp of tightening priced in for this year (Bloomberg, 7 April 2022) and the RBA will need to deliver in a pretty powerful way for rate dynamics to keep driving the AUD upward.”

“The commodity-based AUD bull story may become less compelling if the supply-side nature of the recent commodity price surge (mainly driven by the Russia-Ukraine conflict) starts to weigh more materially on global growth expectations by squeezing households’ real incomes and reducing their discretionary spending in the months ahead.”