Since the start of the year, AUD/USD has evolved in a tight horizontal range centred on 0.77 and capped at 0.80. Economists at Société Générale see this phase as only a pause in the uptrend.

RBA/Fed divergence on tapering

“Regarding monetary policy, we expect the RBA to start implementing tapering in 2H, and the first cash rate hike in 2023. This implies that the bond purchase programme should end in 2022. In contrast, the Fed should announce a tapering program before the year end, which we expect to begin in January 2022. The 10 yields differential is now almost flat, reflecting the AUD/USD range and the current monetary status quo. But earlier RBA tapering in the second part of the year should widen the yields spread and restart the AUD/USD bullish trend.”

“Australian GDP growth is now expected to reach 4.0% in 2022, against 3.3% previously. The ebbing COVID-19 pandemic (including smooth vaccine rollouts) and fiscal policy support continue to be the two main drivers of the recovery, which we believe should lead to the closing of output gap in 2023. All in all, solid growth prospects should help to secure future AUD gains towards 0.85.”

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