Economists at ING warn that any positive effect on the aussie could be counterbalanced by a difficult external environment.
The positive impact of AUD on the economy may not last for long
If our expectations for a 40bp increase prove to be correct, AUD has some good upside potential next week. However, the market’s pricing down the road is more aggressive (around 220bp worth) and although front-loaded tightening may provide support for the currency in the short term, it could limit appreciation in the long run.
“Looking ahead to the next weeks, there is a chance that the RBA hike will prove to be a one-off positive for the aussie as the external environment continues to be highly challenging for it due to its high beta: 1) China’s covid crises and the negative implications on the demand outlook in the region; 2) Global Risk Sentiment as markets grow more concerned about a global slowdown; and 3) New weakness in iron ore price.
We think that any RBA-induced rally in USD could stall around the 0.73300 level, if it reaches such levels.
“Contrasting factors suggest that a flattish profile is possible in AUD/USD through the summer.”
