USD to AUD Forecast – Forbes Advisor Australia

Against many economies, the US dollar is the strongest it has been in years–in March 2020, at the start of the pandemic, the USD/AUD exchange rate hit a high of 1.72. At the time of writing, one US dollar is worth 1.49 Australian dollars.

This strength continues post-pandemic because as economies attempt their recoveries around the world, there has been growing fears of a global recession. As ANZ’s head of FX research Mahjabeen Zaman explains, those ongoing fears have actually strengthened the US dollar against other currencies, such as AUD. 

That’s because of relatively stronger economic fundamentals in the US compared to the rest of the world, which provide USD with the view of being a “safe haven”, Zaman explains. 

Comparatively, the Australian dollar is a pro-cyclical currency, Zaman says. This simply means it appreciates in good times, and depreciates in bad times. So with the COVID-19 pandemic, the Russian war and these recession fears, AUD has been depreciating in its value. 

The US Dollar’s Outlook in 2022

The US dollar has been a strong currency in 2022, largely due to the COVID-19 pandemic easing, leading to strong nation-wide economic recovery. The US Federal Reserve started raising interest rates back in May, to help the economy with its sky-high inflation figures (sitting at 8.2% in the September quarter, compared to Australia’s 7.3%). 

Speaking to Forbes Advisor in the US in September, Matt Forester, chief investment officer of Lockwood Advisors at BNY Mellon Pershing said that 2022 has seen a tremendous rise in the dollar, compared to nearly every other asset class.

That’s because “it’s a juggernaut in the middle of every securities transaction and payment around the globe,” Forester says. 

AU Dollar Performance and Drivers in 2022

Along with its pro-cyclical nature, the Australian dollar also tends to depreciate when there is a risk aversion in the market–a high occurrence during times of global economic uncertainty. 

“Other factors that drive the AUD are commodity prices, interest rate differentials, and external trade balance,” Zaman says–but in 2022, the dominant driver of the downwards move has been the strong US dollar. 

While there was a slight increase in the Australian dollar in August 2022 to 0.71—which foreign exchange analysts at JP Morgan backed as a sign that the AUD/USD exchange rate could remain steady at 0.70 by the end of the year—the US dollar actually rose back to an average 1.49 compared to the Australian dollar throughout September, and higher again to an average of 1.57 in October. 

USD to AUD Forecast

Much like Australia’s Reserve Bank rate rises, the US has also been on an interest rake hiking spree–with an unclear end. According to a Reutersaustr 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. 

Those same economists said they didn’t expect to happen until the second quarter of 2023, which is a time that could spell a weakening of the USD to foreign currencies like the Australian dollar.