The Australian dollar (AUD) ended March on a weaker note against the US dollar (USD), falling to around 0.7620 by the end of the month. This represented a modest decline from its mid-March levels of around 0.7800. The AUD has been under pressure due to several factors, including rising US bond yields, a slowdown in China’s economy, and concerns about the global economic recovery.
Upside Potential for the AUD
Despite the recent weakness, economists at MUFG Bank see upside potential for the AUD in April. This is due to several factors, including the ongoing global economic recovery, Australia’s successful containment of the COVID-19 pandemic, and rising commodity prices. These factors could help support the Australian economy and provide a boost to the AUD.
Tempered by Bouts of Risk Aversion
However, this potential upside may be tempered by bouts of risk aversion, which could lead investors to seek safe-haven assets such as the US dollar. This risk aversion could be triggered by a range of factors, including geopolitical tensions, rising COVID-19 cases in some countries, and concerns about the pace of global economic growth. Any of these factors could lead to a sell-off in riskier assets, including the AUD.
China’s Economic Slowdown
Another potential risk to the AUD outlook is the ongoing slowdown in China’s economy. China is Australia’s largest trading partner, and any weakness in the Chinese economy could have a significant impact on Australia’s export sector. This, in turn, could weigh on the AUD.
Conclusion
Overall, MUFG Bank economists see some potential for the AUD to strengthen in April, but this could be tempered by bouts of risk aversion and the ongoing slowdown in China’s economy. As always, investors should remain vigilant and keep a close eye on any developments that could impact the AUD’s outlook.
