AUD/USD: Tightening global financial conditions and weak China will favor the dollar — Danske Bank

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Danske Bank analysts forecast pair AUD/USD at 0.67 in one month, at 0.67 in three months and at 0.66 in six months. They note that the Aussie could receive some support from tight supply of various commodities.

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“Persistent global inflation has increased the risk of more aggressive tightening, especially by the Fed, which has consequently amplified recession odds and weighed on commodity currencies in general, including the AUD.”

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“The Reserve Bank of Australia (RBA) raised rates by 50 basis points at its September meeting, and will likely follow up with another similar hike next month. However, in the current environment, monetary policy tightening will also poses a higher risk of a recession for the Australian economy, so the AUD will continue to get only modest support from rate hikes.”

“The combination of tightening global financial conditions and weakness in China continues to support the dollar against commodity exporters such as the AUD. However, persistent supply shortages of several commodities, and especially LNG, where Australia is a key global producer, it will likely support the AUD against commodity importers such as the EUR.”

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Source: Fx Street

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