AUD/USD expected to drop to 0.64 in H2 – Rabobank

Australian dollar’s recovery from mid-March lows peaked right above 0.70 on early June, before pulling back to 0.68 area. According to the FX Strategy Team at Rabobank, the aussie might correct lower in the second half of the year.

Key quotes

“While the AUD is linked to commodity prices and therefore to proxies for global demand, some of the recent strength in AUD/USD has a domestic source – such as the strength of iron ore prices and the country’s relative success in dealing with Covid-19.”

“We see the potential for a move lower in both AUD/USD and NZD/USD during the second half of the year on the view that broad levels of risk appetite will correct lower and domestic weaknesses will be exposed.”

“Despite recent strong demand from China for Australian iron ore, the worsened relations between China and Australia has been a concern for other exporters. Unhappy with Canberra’s demand for an investigation into the source of Covid-19, Beijing is reportedly considering tariffs on Australian products that include wine and fruit while possibility encouraging a boycott of other goods and services. At the same time fears are growing about the outlook of domestic Australian demand.”

"We see risk of a pullback to the NZD/USD 0.60 area during the second half of this year. In view of the huge reflation trade in recent weeks, we have revised this forecast up from 0.57. We expect AUD/USD to dip to 0.64 in the same time frame."