Westpac Sticks with Bullish Aussie Dollar Forecast Despite RBA Rate Hike U-Turn

Westpac's Australian Dollar (AUD/USD) forecast remains bullish, despite the bank no longer expecting further Reserve Bank of Australia (RBA) rate hikes this year. The RBA's decision to keep interest rates at 4.35% through the end of 2026 is in line with Westpac's expectations, which is a significant change from their previous view.

According to Westpac, inflation has been more benign than expected, and the recent data 'have broken the other way' for rate hikes. The bank still expects the RBA to maintain a hawkish tone, reflecting its concern that inflation remains too high and economic growth needs to slow.

Westpac's AUD/USD forecast points to a move towards 0.73 by mid-2027, with the pair expected to remain around this level through the end of next year. The bank notes that near-term rate differentials have moved less than its broader forecast shift, and that the recent rise in US Treasury yields should unwind over coming quarters.

Despite the RBA's shift towards a more dovish stance, Westpac still expects AUD/USD to hold above 0.70 and make another run towards 0.71 before moving higher towards their target of 0.73 by mid-2027.