BofA analysts released a report expressing a bullish outlook on the Australian dollar (AUD), anticipating a gradual recovery starting from the second quarter of 2025. The forecast is based on the expectation of a weakening US dollar, coupled with the positive effects of China's economic stimulus measures in the latter half of 2025.
According to the report, the AUD is seen as the most direct G10 FX expression of China's economic health. The recent uptick in steel production at major Chinese factories is viewed as a positive indicator for future Chinese imports from Australia, which could bolster the Australian currency.
BofA economists have also predicted a higher terminal policy rate from the Reserve Bank of Australia (RBA), set at 3.6%, due to persistent inflationary pressures. Despite the RBA initiating a rate-cutting cycle today, consecutive rate cuts seem unlikely given the cautious stance on inflation. This aligns with BofA economists' expectations and supports the medium-term stability of the AUD.
However, the analysts have adopted a wait-and-see approach due to the potential introduction of higher and permanent tariffs against China by the United States.
The completion of the America First Trade Policy review and the outcomes of China's National People's Congress (NPC) meeting are key events that could provide further direction for AUD investment strategies. The firm suggests that clarity on these matters and any positive developments from the NPC could strengthen the case for investing in the Australian dollar.
