The aussie should be able to hold its own against a robust USD in 2022 but its fortunes hinge on how the gap between the RBA’s guidance and the market’s rate expectations changes over time, economists at HSBC report.

Over the near-term, AUD may be challenged by swings in risk sentiment

“There is room for the short-term rates to better reflect the terminal rate and therefore support the AUD. Some of this potential for a pulling forward of the terminal rate comes down to the RBA’s guidance, which has thus far been more dovish than many of its counterparts. The latest CPI and wages growth data may not warrant a shift in the RBA’s rhetoric just yet; however, we believe momentum is moving in the right direction.”

“The AUD has benefited from sizeable current account surpluses over the past few quarters, helped by a surge in commodity prices. This is unlikely to change in the coming quarters, as export growth should remain strong, supported by high commodity prices, China’s policy shift to boost growth, and stabilisation in the slowdown of global growth. All this should continue to support the AUD.”

“Some of these positive catalysts may not kick in more meaningfully until later this year. Over the near-term, the AUD may still struggle, given its vulnerability to swings in risk appetite as the Federal Reserve nears its first rate hike with the need to tap the inflation brakes in focus.”