AUD/USD: Decline seems somewhat excessive – Danske Bank

AUD/USD declined sharply following the surge in worries related to the Chinese real estate sector and financial stability. Economists at Danske Bank analyze the pair’s outlook.

Latest decline seems overdone from relative rates perspective

Following weaker-than-expected wage and labour market data, markets have nearly fully priced out any chance of the Reserve Bank of Australia (RBA) hiking rates further in the September meeting. That said, the latest decline in the cross seems overdone from relative rates perspective. 

The combination of weakening Australian macro data, rising worries on China and modestly declining metal prices have been a toxic combination for the AUD/USD. In the short term, the decline seems somewhat excessive, and a recovery in risk sentiment and/or new stimulus measures from China could turn the course. 

Over the 6-12M horizon, we still maintain a negative view on the cross reflecting broad USD strength.

Forecast: 0.64 (1M), 0.63 (3M), 0.63 (6M), 0.62 (12M)