According to analysts from Wells Fargo, the Australian dollar is likely to decline against the US dollar taking into account recent dynamics and the divergence of monetary policy between the Reserve Bank of Australia (RBA) and the Federal Reserve.
“The RBA is facing somewhat conflicting concerns at present, with a soft domestic economy supporting the case for a maintenance of accommodative policy, while mounting debt imbalances could perhaps be curbed by tighter policy. In all, the RBA is likely to hold policy steady well into next year, at which point it may begin the gradual process of normalizing interest rates.”
“Given the outlook for further policy tightening from the Federal Reserve, and considering recent dynamics and trends in Australian capital flows, we see trend weakness ahead for the Australian dollar against the greenback.”
“Despite our overall negative view on the Australian dollar against the greenback throughout the balance of 2017 and into 2018, by the middle of next year, the Australian currency may be stabilizing and indeed beginning to stage a mild recovery against the greenback. Our view of a more favorable backdrop for the Australian dollar as 2018 progresses is primarily informed by the relative monetary policy outlooks for the United States and Australia.”
“We would not expect a significant and sudden turn from trend weakness to trend strength in the Australian dollar against the greenback, as eventual tightening from the RBA is likely to be gradual in nature.”