Australian Dollar To Outperform the Pound and Dollar in 2024 says TD Securities

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The Australian Dollar will outperform the Pound in 2024 as Chinese growth picks up thanks to the government's stimulus efforts and the UK economy struggles, sending the GBP/AUD exchange rate below 1.90.

This is according to strategists at TD Securities in their year-ahead forecast note that also envisages a steadily higher path for the Australian Dollar against the U.S. Dollar.

"The PBOC will likely maintain loose financial conditions, which favours equities over fixed income," says Mark McCormick, a strategist at TD Securities in New York. "This setup benefits China proxies like AUD".

The Australian Dollar struggled for much of 2023 as China's post-Covid rebound failed to ignite and investors fretted over the country's property sector.

But, TD Securities say authorities have done enough by way of stimulus to minimise the tail risks to the Chinese outlook and economists say they see above-consensus growth in the year ahead.

"Risk-reward favours AUD bulls given the stronger domestic data while AUD is also a typical beneficiary of more positive China news," says McCormick.

Economists at TD Securities say China's economy is anticipated to grow 5.1% in 2024 and 4.8% in 2025.

The China-inspired support to the Aussie Dollar will contrast to a downbeat outlook for the UK economy, which can weigh on the Pound.

"Growth expectations for the UK are starting to correct lower and a lot of the good news that had been priced into GBP has started to recede," says McCormick.

Above: "We see GBP downside vs AUD with moderation in UK data" - TD Securities. Track AUD with your own custom rate alerts. Set Up Here.

Interestingly, TD Securities say the UK economic outlook is so poor that the Bank of England will cut interest rates before the Federal Reserve and the European Central Bank.

This would put the Pound on the back foot against the Euro and Dollar.

"We also like GBP lower vs AUD and NZD where the macro outcomes don't look as meek and where some catch up is forthcoming," says McCormick.

TD Securities expects no further hikes from the RBA, although upside inflation risks from firmer economic activity and higher property prices may bring the RBA back to the hiking table in either February or May 2024.

The first Reserve Bank of Australia rate cut is tipped to fall in August.

TD Securities forecasts the Australian to U.S. Dollar exchange rate to rise to 0.66 by the end of the first quarter of 2024, 0.68 by the end of the second quarter, 0.69 by the end of the third and 0.72 by year-end.

The bank's GBPUSD outlook profile for these time points are 1.22, 1.24, 1.26 and 1.28.

This gives a Pound to Australian Dollar forecast profile of 1.85, 1.82, 1.83 and 1.78. GBPAUD is presently quoted at 1.9140.