Analysts at MUFG Bank see the AUD/USD pair falling back toward 0.6000 from current levels on the back of global recession fears, and a wider divergence between the Federal Reserve and the Reserve Bank of Australia (RBA). 

Key Quotes:

“We continue to expect the USD to strengthen further in the near-term as global financial conditions continue to tighten. The much stronger-than-expected US CPI report for September has reinforced our view that it is premature to expect a dovish Fed policy pivot. The Fed remains on track to continue faster rate hikes through the rest of this year.”

“The sharp tightening of financial conditions will reinforce fears over a hard landing for the global economy which is dragging raw industrial commodity prices closer to bear market territory. The RBA acknowledged that global slowdown risks are becoming more important in setting monetary policy at their last policy meeting, and slowed the pace of rate hikes. A wider policy divergence between the Fed and RBA in the near-term will reinforce downward pressure on the AUD.”

“We expect the AUD/USD to fall back towards the 0.6000-level and closer to the COVID lows from March 2020. One potential risk to our short trade idea is posed the upcoming Communist party Congress in China if it signals a shift to more growth friendly policies such as easing the strict zero-COVID strategy.”