AUD/USD: Year-end forecast of 0.73 intact despite the shift to QE – ANZ

On Thursday, October 15, in a key speech, the Reserve Bank of Australia (RBA) gave its strongest hints yet that quantitative easing (QE) was on the table. Nonetheless, economists at ANZ Bank have left the AUD/USD medium-term forecasts of modest appreciation intact, but see some downside risks to the year-end forecast of 0.73. The 0.70 level is still seen as a solid base over the medium-term. 

Key quotes

“For now, our outlook for global growth is relatively benign, and by extension we expect that the terms of trade can retain their current strength. This will provide some counterweight to the impact that QE can have on the AUD.”

“Our forecast remains predicated on the assumption that 2021 is a better year than 2020. Global growth should remain supported by more fiscal easing in the US, a likely vaccine for COVID-19 and loose monetary policy. Further, with China currently leading the global normalisation, commodity prices should remain elevated, and that will counterbalance the RBA’s easing.” 

“More important to our forecasts will be the sustainability of the global growth pulse, and in this regard, the outcome of the US election and what it means for the fiscal outlook, together with the scale of the second wave of COVID-19 in the northern hemisphere will be more important.” 

“There is some downside risk to our year-end 2020 target for the AUD/USD of 0.73. However, we still think there is value in buying the aussie around 0.70 for the medium-term.” 

“On the domestic front, the only thing that could change our forecasts would be a surprise from the RBA, where it enacts a program that was substantially more aggressive than those seen overseas. For this to be the case and for us to reassess out base case forecasts we would need to see a program that is announced which is larger than 200 B, or the 2021 issuance of the federal government.”