AUD/USD may see modest upside, but remain rangebound over the near term

The AUD is the worst-performing G10 currency so far this month. Economists at HSBC analyze Aussie outlook. The relative rate outlook could weigh on th

The AUD is the worst-performing G10 currency so far this month. Economists at HSBC analyze Aussie outlook.The relative rate cut outlook should be an increasingly important driver for AUD/USD. Markets expect 106 bps of Fed cuts in 2024 vs just 3 bps of RBA cuts. In our view, risks are tilted towards a convergence of rate cut outlooks between the two central banks and the current modest rate cut expectation for the RBA limits the room for relative rates to move in the AUD’s favour.

However, with AUD/USD near the bottom of the recent range, we see risk-reward favouring the upside, based on short-term valuation metrics. The pair is unlikely to stage a sizeable rebound until China releases additional forceful demand-side measures and there are signs of continued disinflation and stronger global growth. However, with these conditions not fully met, we expect the currency pair to remain range-bound.

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