Australian Dollar Forecast: Potential Interest Rate Hike to Boost AUDUSD

Inflation Trends and Rate Hike Expectations

UBS forecasts a 25 basis point increase in the RBA’s official cash rate to 4.6% if second-quarter CPI shows at least a 1% quarter-on-quarter rise. Strong retail sales and labor market data are also seen as potential catalysts for RBA rate hikes. UBS analysts noted that the crucial question is whether recent economic indicators have surprised the RBA enough to justify another rate hike. They predict a delay in the RBA’s planned rate cut to April 2025 from February 2025.

Long-Term Outlook for AUDUSD

UBS projects a positive outlook for the AUDUSD, aiming for $0.68 by December and $0.70 by June 2025. They caution about potential downside risks around its current level of $0.66. UBS advises favoring the AUD over the NZD, targeting an AUDNZD rate of NZ$1.15 in the next year. This analysis reflects UBS’s optimism about the AUDUSD’s long-term prospects amid evolving economic conditions and RBA policy decisions.

Conclusion

In conclusion, UBS’s forecast suggests a bullish outlook for the Australian dollar (AUDUSD) amidst potential interest rate hikes by the Reserve Bank of Australia (RBA). With inflation exceeding expectations and strong economic indicators supporting further rate increases, UBS anticipates AUDUSD to reach $0.68 by December and $0.70 by June 2025. While cautioning about downside risks, particularly around its current level of $0.66, UBS recommends a long position on the AUD against the NZD, targeting AUDNZD at NZ$1.15 over the next year. This analysis underscores UBS’s confidence in the AUDUSD’s resilience amid dynamic economic landscapes and policy adjustments.