AUD/USD outlook for 2024 according to UBS

At its February meeting, the Reserve Bank of Australia (RBA) decided to maintain the cash rate at a 12-year peak of 4.35%, in line with consensus expectations.

The RBA slightly softened its stance on monetary tightening but emphasized that future rate increases remain a possibility, stating that additional hikes in interest rates are still on the table.

Governor Michelle Bullock's remarks at the first press conference were particularly noteworthy, UBS strategists Wayne Gordon and Teck Leng Tan said in a recent note.

Specifically, Bullock downplayed the impact of the lower-than-expected inflation figures for the fourth quarter of 2023, describing them as "slight." She suggested that the RBA would only contemplate reducing interest rates if future inflation figures were to fall below their updated projections.

“As such, we maintain our view that the RBA's first rate cut will come after the other major G10 central banks in the later part of 2H,” strategists wrote.

So what are the investment implications of this outlook?

“We are most preferred on the AUD, see opportunities to sell downside price risks in AUDUSD, and are long AUD versus EUR and CHF, as both central banks are expected to cut before the RBA,” Gordon and Tan said.

“We also like to be long AUDNZD at or below 1.07.”

On the other hand, unexpected hawkish decisions by the Fed and further geopolitical disputes between the US and China are key downside risks to AUDUSD, as well as an earlier-than-expected dovish pivot by the RBA.

Earlier this month, Crédit Agricole CIB senior strategist David Forrester said both AUDUSD and NZDUSD look undervalued at the moment, especially the former.

Forrester advised clients to purchase the AUD/NZD currency pair at 1.0722, with a stop-loss at 1.0545, targeting the 1.12 mark.

By Vahid Karaahmetovic

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