Analysts at Rabobank point out that there is potential for the AUD/USD pair to be whipsawed by US dollar related volatility in the early months of this year on the back of Federal Reserve policy signals. That said, they expect AUD/USD to push higher to 0.74 during the second half of the current year.

Key Quotes: 

“Nobody would argue with the expectation that the Federal Reserve is positioning itself to hike rates well ahead of the RBA.  The relevant questions for the outlook for AUD/USD relate to what degree this forecast is already priced in and the risk that expectations regarding the pace of tightening by either central bank could change in the coming months.”

“Exactly one year ago, the market consensus was forecasting that AUD/USD would end 2021 at 0.78.  In February last year AUD/USD hit a high around 0.8007 which underpinned enthusiasm among AUD bulls.  This level, however, proved to be the peak and in early December AUD/USD dipped below 0.70 as Fed hawkishness increased.  Aside from the pick-up in the broad-based value of the USD in H2 last year, one of the major drivers behind the relative softness of the AUD/USD last year was, in our view, the continued dovish position of the RBA.  Headed into 2022 there is scope for this to change.”

“It can be assumed that further evidence of strength in the labour market will trigger expectations regarding scope for a potential positive shift in RBA rhetoric which will underpin the outlook for the AUD.”

“There is potential for AUD/USD to be whipsawed by USD related volatility in the early months of this year on the back of Fed policy signals.  That said, we expect AUD/USD to push higher to 0.74 in H2 2022.”