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Swedbank recommends buying the Australian dollar against the U.S. dollar as part of a broader short-USD basket.
The Scandinavian lender and investment bank says recent softness in the U.S. labour market now suggests the Fed will start a series of rate cuts beginning next week. "We expect USD to continue to have headwind from stagflation risks and Trump threating of Fed independence."
"Pending rate cuts from Fed will be supportive for high-beta FX such as SEK and AUD, in our view," says the research.
Like Australia, Sweden is believed to be in the beginning of a tentative economic recovery, allowing their central banks to near the end of their interest rate cutting cycles.
This puts SEK and AUD in good standing against USD.
"Sweden and Australia stand out as having comparably sound government finances, which is something FX market seem to put increasing attention to," Swedbank argues, citing fiscal credibility as an additional tailwind for pro-cyclical currencies.
"From a technical standpoint EURUSD has broken the 1.1725 resistance and USDSEK has breached the USDSEK 9.50 support, opening for further gains for SEK and EUR," the bank notes, with USD softness expected to spill into AUD/USD.
Swedbank looks to trade USD weakness by putting a basket of SEK, EUR and AUD on the other side of the trade.
Swedbank’s USD view hinges on the Fed’s impending pivot and on political risks that could weigh on the dollar’s safe-haven premium.
AUD-specific support is drawn from a "tentative recovery," comparatively "sound" public finances, and an RBA that is “relatively close to be done cutting rates," which together enhance AUD carry and cyclical appeal against a softening greenback.
As of today, AUD/USD trades around 0.661 in live pricing, aligning closely with Swedbank’s entry reference for the long AUD position.
GBP/AUD is near 2.053 on the session, reflecting a steady backdrop against sterling as the AUD thesis is primarily USD-driven.
For euro context, EUR/AUD is around 1.784, situating AUD mid-range on the European leg while the bank’s USD-short view remains the dominant driver.
Swedbank’s framing implies that confirmation of softer U.S. labour momentum and the start of Fed easing would validate the long-AUD leg of the basket and could extend gains.
Markets now look to the Fed’s upcoming decision and U.S. data flow as catalysts for the next leg in AUD/USD, with the trade structure calibrated to benefit from a broadening USD downswing.