AUD: Room for a big rebound
We have just published an update of our macro and market views on Australia. As highlighted in recent commentary, we are very reluctant to align with the view that the Reserve Bank of Australia is done with monetary tightening, and think that the market is underestimating the risks of another rate hike, which is our base case. That should be driven by a surprise in the monthly inflation data, potentially already in September.
This should pave the way for a recovery in the Aussie dollar, which currently is undervalued in the short and medium-term, having absorbed the negative implications of Chinese growth rerating and recent instability in global sentiment. We see substantial room for a recovery in AUD/USD before the end of the year, in line with our call for a USD decline, and target a return to the 0.69 July peak in the fourth quarter.
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