AUD/USD: Tighter financial conditions to pressure aussie before recovery in 2023 – MUFG

The Australian dollar weakened sharply in September as financial conditions tightened globally. This trend is set to persist for the rest of the year, economists at MUFG Bank report.

Sharp housing market correction is a clear downside risk

“The economy in Australia remains resilient but there are signs of weakness in the housing market. While the still strong labour market is reason for optimism on the outlook for the economy, a sharp housing market correction is a clear downside risk.” 

“With global equities and commodities set for further declines before year-end as major central banks continue to tighten aggressively, we see all currencies weakening further against the US dollar through to year-end. Assuming equities then bottom and central banks are allowed to pause, some reversal for AUD/USD next year seems likely.”