According to analysts from Danske Bank, the difference between the Federal Reserve (Fed) and the Reserve Bank of Australia (RBA) will likely weigh on the Australian dollar. They forecast AUD/USD at 0.72 in a one-month period and at 0.71 in six months. 

Key Quotes: 

“AUD has appreciated over the past month despite the record-high infections of the omicron-variant, as Australia’s new Covid-strategy has entailed only very light restrictions relative to the earlier lockdowns.”

“Renewed stimulus in China has supported Australian terms-of-trade, as prices of its key export commodity, iron ore, have recovered moderately on the back of more positive demand outlook. Broad USD weakening has also contributed to higher AUD/USD and stronger commodity prices, although we still think the move is unlikely to last.”

“The Reserve Bank of Australia could potentially end its QE purchases in February, although the omicron-driven combination of weaker consumption and staff shortages complicate the decision. However, with strong recovery in Australian labour force, dovish RBA communication and four hikes already priced in for 2022, we think relative monetary policy is generally likely to weigh on AUD later this year.”