The shorter-term yield differentials between Australia and the US have generally pushed AUD/USD upwards over the past few months. With the estimated time for inflation to return to the target band still as late as mid-2025, the RBA is likely to have little tolerance for upside surprises. 

With markets pricing in only 30 bps of cuts by end-2024 (Bloomberg, 6 July 2023), growth concerns may not cap shorter-term Australian yields. However, a broader economic recovery in mainland China and a brighter outlook for Australia’s key exports are still missing, which may weigh on market risk sentiment, pulling AUD/USD downwards.

We see a push-and-pull dynamic leaving the pair trading in a range-bound fashion over the near term. Until there are improving fundamentals and an eventual end to the Federal Reserve’s tightening cycle, there may be little decisive direction for AUD/USD.