The Australian Dollar was the worst performing G10 currency yesterday. The Aussie is still vulnerable to downside correction, in the view of economists at MUFG Bank.

Greater caution of the RBA could spell trouble for AUD

“China optimism as lockdowns end seems to us to have been one source for AUD outperformance. But that could quickly turn. Data from China showed business conditions at small and medium-sized firms in China was in contractionary territory for the third consecutive month in December highlighting that the surge in infections may be continuing to curtail economic growth despite the announcements of restrictions being eased.” 

“We continue to expect scope for a worsening of risk conditions in Q1 which could well add to downside risks for AUD that were highlighted in the RBA minutes that there is a building reluctance to tighten much further.”