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Despite a promising start to 2022, the Australian Dollar (AUD) has since been in a convincing downtrend, losing 8.69% in value against the U.S. dollar (USD) this year.
It plunged to an 18-year low against the U.S. dollar amid the Covid-19 pandemic in March 2020, before making a stellar recovery over the next 12 months, printing a high of 0.8007 in February 2021. However, the Australian dollar, nicknamed the “Aussie,” has since been unable to retest this level and has, instead, cycled to the downside, reflecting a more pessimistic outlook.
The Reserve Bank of Australia (RBA) has been exceptional in deploying a more dovish monetary policy, compared to the Federal Reserve (Fed) and other counterparts, making the Australian dollar less attractive than the U.S. dollar and other currencies. Despite seven rate hikes in 2022, this has failed to bolster the Australian dollar’s strength.
Furthermore, a downgraded economic outlook, exposure to a slowing Chinese economy, fluctuations in commodity prices and inflation—at its highest rate since the 1990s—have collectively contributed to the decline of the Australian dollar.
In stark contrast, macroeconomic headwinds have accelerated the U.S. dollar’s strength against the Australian dollar, in addition to many of its rival currencies. A traditional destination as a safe haven at times of market turbulence, it has once again become a choice for capital inflows seeking reduced risk exposure.
It is expected that, based on the current economic climate and dovish RBA monetary policy, further Australian dollar weakness is likely to occur.
This article will explore the factors that influence this currency pair, and it will offer AUD to USD forecasts.
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US Dollar Performance and Drivers in 2022
U.S. dollar strength has been synonymous with 2022. As of Nov. 22, the ICE Dollar Index (DXY) reflects a 11.15% gain on the year at 107.25, slightly down on the 20-year high of 114.00 printed in September.
The Dollar Index, a broad-based measure of U.S. dollar strength relative to a basket of comparable currencies, reflects the counter-cyclical nature of the world’s reserve currency, which tends to outperform its rivals in adverse economic or geopolitical climates.
This year has been the perfect storm. Surging global inflation, the Russia-Ukraine war, soaring energy costs and post-pandemic U.S. labor shortages were all factors that prompted a “risk off” environment.
An aggressively hawkish Fed has contributed to U.S. dollar strength. Having increased rates seven times this year, safety and exposure to potential increases in the future have also been pull factors for investors.
USD to AUD Forecast
The projected rate of U.S. inflation could have long-term implications for the U.S. dollar. Although a climate of high inflation has been synonymous with 2022 U.S. dollar strength, early signs of falling inflation have been identified. Better-than-expected U.S. Consumer Price Index (CPI) figures provided respite for the Australian dollar versus the U.S. dollar.
On Nov. 10, a 0.5% decrease in the yearly rate of inflation was reported for October, reducing the projected rate from 8.2% to 7.7%. This caught markets by surprise, precipitating a 2.73% U.S. dollar decline against the Australian dollar. This prompted investors to swap U.S. dollar safety for alternative, riskier asset classes amid expectations falling inflation would reduce the likelihood of further Fed rate hikes.
The IMF forecasts U.S. inflation will decline to 3.5% in 2023 and 2.2% in 2024. Although reduced inflation could reduce U.S. dollar strength, future weakness will depend on how it compares to inflation in Australia as well as its economic outlook.
Australian Dollar to US Dollar 6-Month Forecast
As of Nov. 23, the algorithm-generated price prediction service Wallet Investor projects an AUD/USD closing rate of 0.691 in April 2023. The Economy Forecast Agency, a long-term forecast service, is less optimistic regarding Australian dollar strength. It anticipates a trading range of 0.610 to 0.628 in April 2023 before closing the month at 0.619.
The ING Group, a Dutch-based banking and financial services corporation, was more optimistic for the shorter term, forecasting the Australian dollar to rise to 0.740 in March 2024.
AUD to USD Long-Term Forecast
Forecasts for all time horizons are informed by current data and could be adjusted or revised at any time, in response to updated market-moving data or releases. Therefore, the more long-term the forecast, the more likely the revision.
Wallet Investor, which states on its website “AUD to USD Forex pair is a not so good long-term (one-year) investment,” has a rosier longer-term outlook, projecting meager Australian dollar strength. For December 2025, it projects a closing rate of 0.689 followed by 0.696 in November 2027, its maximum forecast date.
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Frequently Asked Questions (FAQs)
Why is the Australian dollar dropping against the US dollar?
There are several factors underpinning the Australian dollar’s weakness. Despite the hawkish stances deployed by both central banks, the Fed’s monetary policy has been far more aggressive than the RBA’s. The Fed’s seven rate hikes from 0.25% to 4.25% compare favorably to the seven RBA hikes leading to its current 2.85% base rate. The 1.35% difference, favoring the U.S. dollar, will inevitably make the greenback a more attractive choice for capital inflows.
Furthermore, 2022 has seen a renaissance in U.S. dollar appetite, largely due to its safe haven status amid the macroeconomic and political headwinds that have dogged the year. This has increased its allure for investors seeking reduced risk in response to rampant inflation, soaring energy prices, the Russia-Ukraine war and a bleak global economic outlook.
Will the AUD vs. USD go up or down in 2022?
As of Nov. 22, the Australian dollar has declined 8.69% in value against the U.S. dollar so far in 2022. Having made seven rate hikes in 2022, it is unlikely the RBA will intervene until next year. It is, therefore, unlikely the “Aussie” will recoup meaningful losses through monetary policy.
Bank of America’s Rates and Commodities Team projects a bearish one-month outlook, citing a target of 0.6500. The pessimistic AUD/USD forecast is shared by CitiFX, projecting a less optimistic target of 0.6000 for the final month of the year.
It is important to consider that Australian dollar to U.S. dollar forecasts can be revised at any time. This will largely depend on the remaining U.S. and Australian economic data releases for the year and the degree they are in line with expectations.
Will the Australian dollar get stronger against the US dollar in 2023?
AUD/USD forecasts for 2023 and beyond are bullish. Australian banking corporation Westpac projects the pair to trade at 0.66 in March 2023 and 0.74 by June 2024. This will depend on the economic outlooks of both economies and how they perform relative to each other. Rates of inflation and monetary policy from the Fed and the RBA will also be key drivers, influencing one currency against the other.
The RBA has stated a 0.5% rise is likely, taking the country’s interest rates to a nine-year high if the Australian economic outlook did not improve.
A more hawkish stance taken by the RBA will likely increase Australian dollar strength. However, the extent it will drive Australian dollar strength depends on how future rate rises compare to the Fed’s. According to a Reuters poll, which surveyed U.S. economists on whether the Fed should adopt a more dovish approach, many stated its current policy should not change until inflation falls by 50%.
Where can I exchange USD to AUD?
There are many online and offline solutions for exchanging U.S. dollars into Australian dollars, and Australian dollars back in U.S. dollars. These can range from the more traditional high street currency exchange bureaus and banks to online, app-based neobanks.
You are encouraged to conduct prior research to exchange currency without paying huge fees. Most conversion bureaus make their money through foreign transaction and conversion fees.
- Transaction fees: A discretionary charge per transaction
- Conversion fees: The difference between the buy and sell price of the currency
Remember that if a vendor promotes zero transaction fees, the hidden cost could be a less competitive exchange rate. Be sure to compare both when conducting your research.
Use an online currency conversion calculator to make quick comparisons from a wide range of competitive quotes.
Read More:USD to AUD Forecast – Forbes Advisor
2022-12-27 14:10:53
