The recent easing in global financial conditions due to rising recession risks has provided moderate support for the Australian dollar. Nevertheless, economists at Danske Bank expect the AUD/USD pair to move downward over the next months.

Relative rates unlikely to provide much support for AUD/USD

“While we expect the Reserve Bank of Australia to continue hiking rates after the 50 bps hike in the August meeting, the weakening economic growth forces it to take a more meeting-by-meeting approach going forward. Market is already aggressively priced, and thus we do not expect relative rates to provide much support for AUD/USD.”

“We believe Fed will have to continue hiking rates aggressively, which will ultimately weigh on global growth. Environment of tightening financial conditions and slowing growth is negative for commodity currencies, and we maintain a downward-sloping forecast profile for AUD/USD.”

“Forecast: 0.69 (1M), 0.68 (3M), 0.67 (6M), 0.65 (12M).”