Introduction
The Australian dollar (AUD) has had a difficult start to the year, with lackluster performance in Q1 and a sluggish start to Q2. According to economists at Société Générale, this trend is expected to continue, with the AUD/USD pair forecasted to remain below the key 0.70 mark.
AUD Performance in Q1 and Q2
The AUD has been weighed down by a number of factors in recent months. In Q1, the currency was impacted by a slowdown in China, Australia’s largest trading partner. This was exacerbated by ongoing tensions between the US and China, which had a negative impact on global risk sentiment.
In addition, concerns about the Australian economy’s recovery from the COVID-19 pandemic have put pressure on the AUD. Despite the country’s successful containment of the virus, there are still uncertainties around the pace of the economic recovery and the impact of ongoing lockdowns.
These factors have contributed to the AUD’s lackluster performance in Q1 and the beginning of Q2, with the currency struggling to gain traction against its major counterparts.
Société Générale’s Forecasts
According to Société Générale’s economists, the AUD is unlikely to see a significant rebound in the coming months. The bank’s latest forecast predicts that the AUD/USD pair will remain below the key 0.70 mark, which has acted as a significant resistance level in recent months.
There are several factors that are expected to weigh on the AUD’s performance in the near term. One of the key drivers is the divergence in monetary policy between the US Federal Reserve and the Reserve Bank of Australia (RBA).
While the US is expected to begin tapering its bond purchases in the near future, the RBA has signaled that it will maintain its current policy stance for the foreseeable future. This divergence in policy is likely to lead to a widening of the interest rate differential between the two currencies, which could put downward pressure on the AUD.
In addition, ongoing concerns about China’s economic growth and the impact of trade tensions with the US are expected to weigh on the AUD’s performance. China is Australia’s largest trading partner, and any slowdown in the Chinese economy is likely to have a negative impact on Australian exports and the overall economy.
Conclusion
In conclusion, the AUD is expected to continue to struggle in the coming months, with economists at Société Générale predicting that the currency will remain below the key 0.70 mark. The ongoing divergence in monetary policy between the US and Australia, as well as concerns about the Chinese economy and trade tensions with the US, are likely to weigh on the AUD’s performance in the near term.
While there are some factors that could potentially support the AUD, such as the country’s successful containment of the COVID-19 virus and the ongoing global economic recovery, the overall outlook for the currency remains cautious.
