The Australian dollar has well and truly been in the doldrums of late, closing to under .667 US cents as recently as September—a far cry from the parity it once enjoyed in October 2010. At the time of writing, one Australian dollar was worth 0.67 USD–a level consistent with previous global crises, such as the GFC (where AUD was at 0.60 against USD) and the COVID-19 pandemic.
This recent dip, however, is due to the ongoing concerns of economic growth on a global scale, and the forecasts of a US recession.
With the Labor government’s first budget handed down in October and the RBA continuing to raise rates, the Australian dollar is tipped to fall even further before the end of 2022.
The AU Dollar’s Current Outlook in 2022
It’s been a fluctuating year for the price of AUD, with ongoing global crises affecting the market significantly. As the RBA explains, Australia has a floating exchange rate, “meaning the movements in the Australian dollar exchange rate are determined by the demand for, and supply of, Australian dollars in the foreign exchange market”.
Domestically, interest rates and inflation figures also affect how the Australian dollar performs on the foreign exchange market. At present, against the USD–which has even higher interest rates and inflation than Australia–the AUD has been falling at a steady rate for the past six months to September.
According to data from Westpac, 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.
US Dollar Performance & Drivers in 2022
Speaking to Forbes Advisor, ANZ’s head of FX research Mahjabeen Zaman explains why—despite the market stress occurring globally—the US dollar is still at a strength.
Largely, it comes down to the US dollar traditionally providing a safe haven status in times of market stress.
“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.”
This means despite recession fears, the US dollar is still considered to be in a competitive position while the Federal Reserve hikes rates, and to be a safe investment while other ‘less healthy’ currencies decline in value due to global market volatility.
“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 says.
AUD to USD: Six-Month Forecast
Much like our own RBA rate rises, it’s unclear as to when the US Federal Reserve will slow its interest rate hiking cycle. According to a Reuters survey, which polled US economists on whether the Fed Reserve should slow down, most were in agreement that the central bank should not pause until inflation falls to around half its current level.
“CPI inflation was not expected to halve until Q2 2023, according to the poll, averaging 8.1%, 3.9% and 2.5% in 2022, 2023 and 2024, respectively,” the survey reads.
That inflation expected by the US is more than six months away, which has ANZ’s prediction of the AUD to USD six-month forecast sitting at 0.64, according to Zaman.
Australian Dollar to US Dollar Long-Term Forecast
Looking towards the longer term, Zaman says ANZ expects the AUD/USD to appreciate in the second half of 2023.
ANZ then forecasts AUD/USD to reach 0.70 by mid-2024, Zaman tells Forbes Advisor.
Meanwhile, Westpac is forecasting an AUD/USD exchange rate of 0.74 by June 2024 and NAB is predicting AUD to be 0.72 to the US dollar by June 2024.
