Australian Dollar: ING targets 0.7100 at year-end despite dovish RBA hike

A rate rise to 4.85% from the RBA was accompanied by a 6-3 vote, softer guidance and a weaker economic outlook, signalling a more dovish stance and sending the Australian dollar lower, according to ING’s Francesco Pesole. While he anticipates no additional increases, strong carry and limited scope for dovish repricing underpin his positive view on AUD. Despite near-term headwinds, ING retains its year-end AUD/USD target of 0.7100.

AUD/USD retains year-end target despite dovish RBA signals

"The Aussie dollar came under pressure this morning after the RBA hiked rates as expected to 4.85%, but delivered some dovish signals. First, the 6-3 split suggests lower conviction around today’s decision than in markets, which had almost fully priced in a hike (21bp)."

"Second, the statement dropped its reference to potential further hikes for the first time since June. Third, the economic outlook was revised sharply to the downside, with a focus on falling house prices weighing on consumers and upside risks to unemployment."

"At the press conference, Governor Michele Bullock reinforced the RBA’s wait-and-see approach, stressing that monetary tightening still has to feed through to the economy. She left the door open to further tightening, but the bar is clearly higher now. The RBA appears happy to assess the impact of previous hikes before acting again."

"This is in line with our forecast of no further RBA hikes. Despite today’s correction, we remain positive on AUD, which offers the best short-term carry in G10, including on a volatility-adjusted basis. Markets price only a one-in-three chance of another hike at the coming meetings and already embed 13bp of easing by the end of 2027, leaving AUD with limited risk of further dovish repricing for now."

"The current environment remains a bit challenging for AUD amid AI-related jitters, but we remain confident that our 0.7100 AUD/USD target can be reached by year-end."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)