AAA Rating Reaffirmed: Australian Dollar Faces Growth Headwinds Amid Rate Hike Uncertainty

The Australian Dollar (AUD) has maintained its gentle upward trend, despite sluggish GDP expansion and persistent inflation. The country's AAA credit rating was reaffirmed by S&P due to low public debt and robust institutions. However, weak productivity and above-target inflation pose underlying risks for the domestic economy.

BNY emphasizes that economic growth is easing to 1.5% in fiscal 2027, with per capita GDP falling in ten of the last 15 quarters. Rabobank views the RBA's upcoming August 11 meeting as a key catalyst, maintaining that strong labor data leaves room for one final rate hike in November.

AUD/USD has been boosted by a softer US Dollar and the lingering prospect of an RBA rate increase. Rabobank has upgraded its 3-month AUD/USD forecast to 0.71, with a modest upside bias out to 12 months driven primarily by broader US Dollar softening.