Australian Dollar Fundamental Forecast: AUD/USD Eyes Economic Data as RBA Hike Bets Increase

AUSTRALIAN DOLLAR FUNDAMENTAL FORECAST: BULLISH

  • Aussie Dollar underpinned by commodity prices and rebounding sentiment
  • March PMI data shows Australia’s economic recovery is strengthening
  • RBA rate hike bets key to AUD/USD’s direction as potential risks linger

The Australian Dollar has been on a tear versus most of its major peers in recent weeks, boosted by rising commodity prices and a rebound in market sentiment. Upbeat domestic economic data has also helped to lift the Aussie Dollar. Last week, Australia’s March purchasing managers’ index (PMI) for the manufacturing and services sectors showed that the post-lockdown economy continues to improve.

That momentum will likely carry on as the economy continues to advance after Australia removed the brunt of Covid restrictions over the last few months, resulting in acute labor market growth. The upcoming week will see February’s preliminary retail sales figures cross the wires. Building permits for February and a Markit manufacturing PMI print for March will follow later in the week. Analysts expect to see that PMI figure rise to 57.3 from 57.0, according to a Bloomberg survey.

A better-than-expected set of data would likely fuel already rising rate hike bets for the Reserve Bank of Australia (RBA), benefiting AUD further. Alternatively, disappointing data could halt AUD’s recent rally. A reversal in market sentiment would also weigh on the risk-sensitive currency, which could be induced by an escalation in Ukraine or an uptick in Covid cases in China. The 2022-2023 budget is also set to be presented on March 29 and could have an impact on the RBA’s outlook. The chart below displays the RBA’s implied policy rate for the December 2022 meeting measured by cash rate futures, currently pricing in around 150 basis points of tightening.