Australian Dollar 2024 Outlook

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The Australian Dollar struggled for much of 2024 as China's post-COVID economic recovery failed to impress, and the Reserve Bank of Australia proved a reluctant hiker regarding interest rates.

But the global picture looks brighter as 2024 approaches, thanks to expectations that China's lacklustre economic performance is passing and the world economy will see a pickup in growth.

This contributes to a broadly constructive stance towards the Aussie Dollar by the majority of analysts we follow.

The consensus expects the Australian Dollar to rally in 2024, but analysts at one of Scandinavia's biggest banks and capital markets firms are rowing against the flow and are sellers in 2024.

The Aussie has strengthened into year-end, but Danske Bank is betting on AUD/USD weakness, and projections show this weakness will correspond with recoveries in GBP/AUD and EUR/AUD over the first half of next year.

"We remain short AUD/USD spot as part of our FX Top Trades 2024," says Stefan Mellin, Chief Analyst for FX Strategy at Danske Bank.

"Weak growth momentum in Australia, in the key export market China and also globally is likely to continue weighing on commodity prices going forward," reads Danske Bank's year-ahead FX publication.

Danske Bank's AUD/USD exchange rate forecasts see 0.64 in three months, 0.63 in six months and 0.62 in 12 months. Spot is currently quoted at 0.6730.

Danske's Pound to Australian Dollar exchange rate forecasts show a recovery from current levels of 1.8850 to 1.95 in three months, 1.91 in six months and 1.90 in 12 months.

For the Euro to Australian Dollar exchange rate, a move from the current spot at 1.6250 to 1.72 in three months is expected, ahead of 1.84 in six months and 1.84 in 12 months.

Currency analysts at NatWest are also 'short' the Aussie Dollar in 2024, saying slowing global growth can be expected to weigh on the Antipodean currencies for the larger part of the coming year.

"Monetary policy operates with a lag, and considering the cumulative tightening done so far across the developed economies, the likelihood of further weakness in the developed world including Europe and the US will further weigh on Antipodean currencies in coming quarters," says Antony George, G10 FX Strategist at NatWest.

China - the largest trading partner for both Australia and New Zealand - will experience weak growth next year, according to NatWest.

"For Australia, further decline in terms of trade and weaker global growth will weigh on exports," says George.

Above: Australian Dollar performance in 2023, showing it was not the easiest of years.

Yet the consensus is positive on the Australian Dollar's prospects, anticipating an improvement in global growth trends and investor sentiment as the world's central banks cut rates.

This will lift pro-cyclical assets, such as the Aussie Dollar.

"Upside ahead," says ANZ, eyeing positive developments in global financial markets, China and the domestic economy, which wil conspire to make the Aussie a darling of foreign exchange markets in 2024.

"Positive risk sentiment in 2024 will support the AUD and NZD," says Mahjabeen Zaman, an analyst at ANZ.

Above: "AUD/USD is undervalued based on our Fair Value model" - ANZ. Track AUD with your custom rate alerts. Set Up Here.

The Australian Dollar's varied performance in 2023 resulted from prevailing USD direction and developments in China, where the post-Covid rebound failed to materialise and boost China proxies, of which the Aussie is considered.

"Looking ahead, we expect these two factors to dominate," says Zaman, who anticipates a broad weakening in the U.S. Dollar that should boost procyclical trends on global markets, which is traditionally supportive of the Australian Dollar.

"Global risk sentiment is positive as we look into 2024, with global inflation moderating and global central banks easing. This sentiment is feeding into risk assets, and the AUD, being a high beta currency, stands to benefit," says Zaman.

But the RBA will also offer a hand: "given our view that RBA rate cuts will only begin at the end of 2024, it is likely that the carry advantage that the AUD will have against currencies where interest rates have eased aggressively will matter," says Zaman.

Above: Australia's positive trade balance can offer a floor to AUD. Image courtesy of NatWest.

For the Australian Dollar to U.S. Dollar exchange rate (AUD/USD), ANZ reckons the floor was reached when 0.6270 was printed back in October.

Projections show ANZ pencils in 0.68 for the end of March 2024, 0.69 for the end of June, 0.70 for the end of September, and 0.7 for the year's end.

The corresponding Pound-Dollar profile is 1.30, 1.32, 1.33, 1.34, giving a Pound to Australian Dollar profile of 1.91, 1.91, 1.90 and 1.91.

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The flat Pound-Aussie profile reflects expectations for a stronger Pound, which looks set to keep the exchange rate relatively contained.

Elsewhere, a Euro-Dollar profile of 1.11, 1.13, 1.14 and 1.15 gives a Euro to Australian Dollar exchange rate outlook of 1.63, 1.64, 1.63 and 1.64.

Strategists at TD Securities say the Australian Dollar will outperform the Pound in 2024 as Chinese growth picks up thanks to the government's stimulus efforts.

In their year-ahead forecast note, TD Securities envisages a steadily higher path for the Australian Dollar against the Pound and 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".

Above: "We see GBP downside vs AUD with moderation in UK data" - TD Securities.

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

The first RBA rate cut is tipped to fall in August, which is behind the market's expectations for when the Fed, ECB and Bank of England will cut.

Accordingly, 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.