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The Australian dollar is a 'buy' with two major financial institutions.
The Australian dollar is a 'buy' with two major financial institutions, where analysts cite supportive macroeconomic conditions, 'hawkish' monetary policy signals, and improving sentiment toward China.
A central theme among strategists is the close correlation between the Australian dollar and Chinese market sentiment:
"Since the start of the year, the Australian dollar has closely followed the trajectory of Chinese equities," says Société Générale, noting that recent relief over U.S. tariff delays has buoyed risk assets. "The upward trend seen since the ‘Liberation Day’ drawdown is not yet over."
Bank of America's bullish stance on China's economic recovery prompts it to back Australian Dollar upside."
"We were already bullish AUD/USD given the positive outlook for China's growth and our forecast for USD/CNY to remain rangebound (7.10–7.30).
"China growth rebound, super fund dynamics and risk resilience are other tailwinds."
Also potentially boosting the Australian dollar is the Reserve Bank of Australia's (RBA) unexpected decision to hold interest rates steady at 3.85% this week, defying widespread expectations of a rate cut.
"The RBA surprised markets this week by keeping interest rates steady," Société Générale noted, adding that the RBA’s more cautious approach could provide support:
"The AUD-USD three-year yield differential appears to be bottoming out… and the RBA’s cautious approach could support both AUD yields and the Australian dollar in the weeks ahead."
Above: AUD vs. USD (top) and AUD vs. GBP at daily intervals.
Bank of America took a similar view, recommending a long position on the currency following the central bank’s decision. "We recommended buying AUDUSD this week, following the RBA's decision to keep rates on hold," said analysts.
Both institutions emphasise that the AUD remains undervalued relative to macro fundamentals. "In our view, the FX market looks particularly mispriced," Bank of America wrote, targeting a move toward 0.68 by year-end.
Société Générale highlighted the potential for positive growth surprises, despite strong global demand for Australia's abundant natural resources.
"The market has revised Australian growth forecasts down a long way, providing room for positive surprises," Soc Gen says. "The world is fighting over natural resources."
Bank of America cautions that the biggest risk to its constructive AUD view is U.S.-China trade escalation, something that cannot be entirely discounted given U.S. President Donald Trump is again proving to be highly unpredictable in his tariff policy.
"But with the relevant deadline a month away, there is a window for AUD to outperform," says Bank of America.