Australian Dollar Forecast 2024: Strengthen to 0.70 by 2025 say BNP Paribas, Rabobank

December 21, 2023 - Written by Ben Hughes

STORY LINK Australian Dollar Forecast 2024: Strengthen to 0.70 by 2025 say BNP Paribas, Rabobank

Australian Dollar Exchange Rates Take Advantage of Easier Financial Conditions, GBP/AUD Hits 5-Month Lows

Expectations of Federal Reserve rate cuts during 2024 have been crucial in boosting the Australian dollar, especially with expectations that the Reserve Bank of Australia will be slow in relaxing monetary policy.

The Australian dollar to US Dollar (AUD/USD) exchange rate posted 3-month highs close to 0.6780 before trading around 0.6760 on Thursday.

The Pound to Australian dollar (GBP/AUD) exchange rate also dipped to 5-month lows at 1.8675 on Wednesday before a tentative recovery to 1.8740.

BNP Paribas and Rabobank both see scope for AUD/USD to strengthen to 0.70 at the end of 2024.

According to BNP Paribas; “Relative to other G10 currencies (excluding Japan), fewer rate cuts are priced in for the Reserve Bank of Australia (RBA), making the interest rate channel more supportive for the AUD.”

The bank added; “The AUD and the NZD remain cheap versus their respective BNP Paribas CLEERTM fair values of 0.74 and 0.62, with the AUD the most undervalued pair across G10.”

Commonwealth Bank of Australia (CBA), however, expects a more dovish stance; “Against the backdrop of rising unemployment and falling GDP per capita, the board will be quite reluctant to tighten policy further. Indeed, the need for further rises has dissipated.”

The bank expects that rates will be cut from September 2024.

From a longer-term perspective, CBA notes that the new Monetary Policy Board is also likely to commence in July which will have potentially important implications.

Credit Agricole expects relative trends will support the currency; “The RBA remains data-dependent, and if the Q4 inflation data surprise it to the upside in late January, it will hike rates in February. With the market still pricing in over 50bp worth of RBA rate cuts in 2024, this provides some support for the AUD and Aussie rates.”

Goldman Sachs expects that financial conditions will ease in 2024 as the Fed cuts interest rates and this will be a crucial element in currency markets. According to the bank; “Going into next year with more bullish equities and rates views means that we should expect outperformance from both AUD and NZD.”

Nordea added; “The US rate cuts should also underpin the global economy, commodity and energy prices and risk sentiment.”

BNP Paribas noted; “Higher commodity prices could enhance AUD appreciation due to increased production capacity.”

ANZ looks at the outlook for iron prices which are currently trading around $130 per ton; “This rally looks susceptible to a retracement if demand does not eventuate as expected.”

It does, however, expect underlying support; “Nevertheless, the downside looks limited amid the tightness in the market. We have also raised our 2024 forecasts, with prices unlikely to drop below $100/t.”

Despite the potential for near-term support, Danske Bank is not optimistic over the AUD outlook; “Overall, lower long-end inflation expectations, real rates and commodities broadly paint a much weaker industrial demand picture than indicated by the rebounding manufacturing PMIs and could prove a poor cocktail for cyclically sensitive commodities when the asset-relief rally fades.”

Danske added; “Weak growth momentum in Australia, in the key export market China and also globally is likely to continue weighing on commodity prices going forward. Thus, we think that relative rates, relative terms-of-trade and US economic outperformance will all be factors pushing AUD/USD lower in 2024.”

Rabobank notes a mixed outlook; “Interest rate differentials look set to offer the AUD support through much of next year. That said, the AUD is sensitive to broad levels of risk appetite and to the outlook for Chinese growth. While Fed rate cuts would underpin risk appetite in 2024, a rally in the AUD/USD could be curtailed if growth in China continues to disappoint.”

It sees a positive net balance and added; “We are optimistic that AUD/USD could be testing the 0.70 area on a 12-month view, though we see risk for dips in AUD/USD on a 1-to-3-month timeframe.”

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TAGS: Australian Dollar Forecasts