The Australian dollar has strengthened sharply since the Ukraine conflict began. Commodity terms of trade benefit are unlikely to consistently trump global growth uncertainty, capping substantial gains for the aussie.

China growth slowdown risks will weigh on AUD 

“The scale of the price increases in energy and base metals implies a substantial terms of trade boost that will provide support for the economy going forward.” 

“While the markets’ conviction on RBA rate hikes has increased, the minutes from the RBA meeting held in March indicated less urgency. We do not expect the RBA to deliver what is priced and given the scale of the move in March, some correction lower seems likely.” 

“High level of indebtedness in housing will continue to be reason for caution while the China growth slowdown risks will also weigh on AUD at higher levels.” 

“We expect AUD gains but weakening global growth will limit the upside.”