AUD Stuck in Neutral as US Dollar Rally Limits Gains

Rabobank's Senior FX Strategist Jane Foley expects limited upside for the Australian Dollar (AUD) in the next three months, citing strong headwinds from a firmer US Dollar (USD) and weaker trade balance.

The AUD has had a strong year-to-date performance, supported by the Reserve Bank of Australia's (RBA) hawkish stance and commodity-linked profile. However, Foley notes that market expectations for another 25-bps RBA rate hike on a six-month view are already priced in, limiting near-term gains.

The RBA's June policy meeting described financial conditions as 'probably somewhat restrictive' and noted underlying momentum in household consumption had eased before the Iran war. The recovery of the USD in recent months is also a headwind for the AUD/USD.