HSBC maintains a bearish stance on the AUD/USD pair due to its recent underperformance and several key factors. Despite the Reserve Bank of Australia’s hawkish hold on interest rates, the Australian dollar has faced downward pressures primarily from a strong US dollar and negative risk sentiment. HSBC lists four primary reasons for their pessimistic outlook.
Firstly, interest rate divergence between Australia and the US is expected to converge in the upcoming quarters, with Australia’s aggressive rate hike expectations aligning with the more moderate outlook of the Federal Reserve. Secondly, muted improvements in China’s property sector are anticipated, which could negatively impact Australia’s exports of steel and iron ore, further affecting the AUD-USD pair. China’s real estate index, nearing its year-to-date low, is negatively correlated with AUD-USD movements.
Additionally, the US’s increasing yield advantage and sustained economic growth are expected to strengthen the US dollar throughout 2024, potentially weakening the Australian dollar further. Lastly, Australian superfunds, considering the headwinds faced by AUD-USD, may choose to decrease their high hedge ratios on foreign investments, anticipating a further decline in the AUD.
HSBC’s analysis projects a continued bearish trend for the AUD/USD pair, with significant influences stemming from monetary policy differences, China’s economic situation, and broader global financial strategies. While internal Australian dynamics play a part, external factors, particularly those connected to the US and China, are pivotal in shaping the trajectory of the Australian dollar.