AUD Could Fall Even Further As 2022 Bids Farewell, Forecast Says

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The Australian dollar’s value is driven by both global and domestic influences. The forecast predicts that it will decrease more as the year ends, but will recover in the first half of 2023.

According to the RBA, Australia has “a floating exchange rate”. Demand and supply in the foreign exchange market determine the movements in the AUD. 2022 could have been better for the Australian dollar price.

At the domestic level, Interest rates and inflation data in Australia also impact how the Australian dollar performs in the foreign exchange market. Currently, the AUD has been decreasing steadily versus the USD, which has higher interest rates and inflation than Australia, for the past six months to September.

From April to September, there is a visual fluctuation, and the ongoing global issues are one of the factors. 

Westpac’s data revealed that:

“The Australian dollar was 0.738 cents to the US dollar in March. In April, 0.736; May, 0.705; June, 0.702; July, 0.686; a slight increase in August to 0.696; and back down significantly to 0.667 for the month of September.”

Many are wondering why the US dollar remains steadfast despite the challenges faced by the world. To put an end to the curiosity of many, ANZ’s head of FX research Mahjabeen Zaman, reveals US’ secret sauce:

“Other safe haven currencies include the Japanese Yen and the Swiss Franc,” Zaman says. 

“In the current cycle, however, the US dollar offers a higher interest rate and a yield advantage as opposed to the Yen, which is in a negative interest rate environment, and Swiss Franc, which has much lower interest rates than the US currently.” 

“We expect the US dollar to stabilise once the Federal Reserve slows or approaches the end of its interest rate hiking cycle and when global growth is synchronised,” Zaman stated.

According to a Reuters poll of US experts on whether the Fed Reserve should halt, the majority agreed that the central bank should not pause until inflation falls to roughly half its present level.

According to Zaman, the US’s predicted inflation is more than six months away. Hence ANZ’s six-month forecast for the AUD to USD is 0.64.

However, Zaman advises people to think long-term as AUD/USD will be appreciated more in the second half of next year.

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