Zhitong Finance APP learned that Guotai Junan International released a foreign exchange market outlook. The team believes that the trend of the U.S. dollar will gradually become clear by the end of 2024, mainly depending on the performance of the U.S. economy. Under the baseline scenario, the United States avoids a severe recession, the Federal Reserve cuts interest rates according to the dot plot, and the 10-year U.S. bond yields have limited downside space, which may support the strength of the U.S. dollar in the fourth quarter of 2024, but seasonal factors may restrain the U.S. dollar’s gains. In addition, the Bank of Japan will raise interest rates in December or early next year, but the yen will still be weak in 2025.
The following is a summary of the research report:
We expect that the trend of the US dollar will gradually become clear by the end of 2024, mainly depending on the performance of the US economy. Under the baseline scenario, the United States avoids a severe recession, the Federal Reserve cuts interest rates according to the dot plot, and the 10-year U.S. bond yields have limited downside space, which may support the strength of the U.S. dollar in the fourth quarter of 2024, but seasonal factors may restrain the U.S. dollar’s gains. We expect the main downside risk to come from the possibility of the U.S. economy slipping into recession, which would lead to continued weakness in the U.S. dollar.
We expect the Bank of Japan to raise interest rates in December or early next year, but the yen will still be weak in 2025. Despite expectations of interest rate hikes, the yen’s real interest rates remain low and lack a solid foundation for long-term strength. Assuming a soft landing for the U.S. economy in 2025, U.S. dollar interest rates are likely to remain at a relatively high level. Considering that the interest rate gap between the United States and Japan is still significant, and the Bank of Japan may adopt a gradual interest rate hike strategy, the Japanese yen may show a mild depreciation trend. Our base case scenario is that USD/JPY could hit the 155 level by the end of 2025.
We expect that the euro will most likely rise slightly amid shocks next year. As the Eurozone economy will still face pressure next year and inflation will be relatively mild, we believe the European Central Bank will continue to cut interest rates. Within this year, we believe that the euro exchange rate will reverse at 1.10. But the trend of the euro next year still depends largely on the extent of the Fed’s interest rate cuts and the trend of the US dollar exchange rate.
We expect sterling to continue its strength in 2025. Although inflationary pressure in the UK has eased, it is still sticky and the economy is developing well. The Bank of England is expected to lag behind other central banks in cutting interest rates, adding to the appeal of the pound. The stickiness of inflation and the momentum of economic recovery may prompt the Bank of England to adopt gradual monetary policy easing. We expect the Bank of England to cut interest rates five times from November 2024 to August 2025, by 25 basis points each time, to 3.75%. The GBP/USD exchange rate is expected to remain resilient and continue its volatile upward trend. We expect GBP/USD to hit around 1.38 by the end of 2025.
We expect that the Australian dollar will show a volatile upward trend in 2025, benefiting from Australia’s resilient and strong job market, the Reserve Bank of Australia’s prudent monetary policy stance, and the Federal Reserve’s clear path of interest rate cuts. Labor supply and housing demand brought about by fiscal stimulus and immigration will drive economic growth. We expect the Reserve Bank of Australia to start an easing cycle in 2025, cutting interest rates for the first time by 25 basis points in the first half of the year, and cutting interest rates three more times by November, lowering the official cash rate from 4.35% to 3.35%. The AUD/USD exchange rate is expected to stabilize and turn volatile upward. We predict that the Australian dollar against the US dollar is expected to reach the 0.72 level by the end of 2025.
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The Federal Reserve cut interest rates as scheduled in September by 50 basis points. According to the dot plot released by the Federal Reserve, it is still possible to cut interest rates by about 50 basis points during the year, and there will be about 100 basis points of interest rate cuts next year. It should be pointed out that the market’s expected rate cut this year is about 75 basis points (as of September 27). In other words, the market price in rate cut is more radical.
But judging from the trend of U.S. bond interest rates after the interest rate cut, we feel the market’s hesitation. From the chart below, we can find that the 2-year U.S. Treasury bond interest rate has not successfully broken through the 3.5% mark. At the same time, the 30-year U.S. Treasury bond interest rate has rebounded to a certain extent after the interest rate cut. This trend in U.S. bond interest rates actually fully demonstrates that the market space has not been opened up by the interest rate cut. Instead, the market has generated more skepticism. Because if this round of interest rate reduction cycle takes two years as the dimension, and the interest rate will drop to approximately 3.5% by the end of next year, then if the two-year U.S. bond interest rate is significantly higher than 3.5%, it will appear to be useless to a certain extent. From this perspective, if the 10-year U.S. Treasury interest rate is significantly lower than 4% (taking into account a certain term premium), then its trading value may be higher than its holding value.
Another way to observe the market is to compare the trend of GDPNow with the 10-year U.S. Treasury bond interest rate. From the chart below, we can also find that the recent trend of GDPNow and the 10-year U.S. Treasury bond interest rate have significantly diverged. A similar divergence occurred last time. , occurred from March to June 2023, when the Silicon Valley banking crisis broke out in the United States, and market concerns about a hard landing of the U.S. economy were rampant.
To sum up the above phenomena, the key to market confusion is still whether the U.S. economy will experience a recession. Judging from the forecasts given by most institutions, the U.S. economic growth rate is likely to exceed 2.5% this year and will remain at 2 next year (this is also the Federal Reserve’s prediction). Therefore, there does not seem to be an obvious risk of recession in the U.S. economy. However, whether the U.S. economy will fall into recession is still the question that the market is most concerned about, and this is also a question that will continue to be verified in the coming quarter.
For the foreign exchange market, there is a high correlation between the trend of 10-year U.S. bond interest rates and the U.S. dollar index. Therefore, the issue of exchange rate is also highly related to the fundamentals of the U.S. economy. Answering this question does not seem simple, but we can do such a baseline scenario analysis, that is, if the U.S. economy does not experience a severe recession, the Federal Reserve will most likely cut interest rates in accordance with the current dot plot guidance. Then The room for the 10-year U.S. bond interest rate to fall will be relatively limited, which means that the upward risk of the U.S. dollar exchange rate in the fourth quarter of this year may be greater than the downward risk. Judging from the experience of the Silicon Valley banking crisis, after a quarter of entanglement, the US dollar should choose a relatively clear direction. Although we can leave the problem until the end of this year or early next year (that is, this winter), overall, the current mainstream view in the market is that the US dollar will still weaken next year, and it seems to face certain upward risks.
Of course, judging from the seasonal performance of the past 10 years, the US dollar tends to be weaker in the fourth quarter. According to this rule, our above analysis seems to have a certain conflict with it, but the seasonality also shows that the US dollar is in the top three. Quarters tend to gradually strengthen, and if seasonality is anything to go by, dollar bulls only need to get out of the way in the fourth quarter and wait until the end of the year or early next year to reenter the market.
Of course, this is the biggest risk to our forecast if the U.S. economy experiences a significant recession, as many fear. Once this happens, the dollar may weaken again until the Fed sharply cuts interest rates to stabilize the economy.
Yen Exchange Rate Outlook: Interest Rate Spreads Are King
Since the beginning of this year, the yen has gone from the weakest to the strongest, and the trend of the US dollar and carry trade are the key influences. Japan’s exit from the era of negative interest rates in the first half of the year failed to prevent the yen from accelerating its downward trend. In the first half of this year, the yen continued to weaken. The U.S. dollar-yen exchange rate rose 14.2% to 160.88, becoming the lowest point in 38 years since December 1986. It also became the worst-performing currency among G10 currencies in two quarters. At the interest rate meeting held in March this year, the Bank of Japan began to normalize monetary policy, including exiting negative interest rates, abandoning YCC, and stopping the purchase of ETFs. However, the normalization of monetary policy has not reversed the downward trend of the yen. We believe there are two reasons: 1) The policy scope of the Bank of Japan’s interest rate hike is still mild compared to the global background; 2) The logic of the trend of Japan’s exchange rate and other yen assets is more influenced by the global economy, especially the United States. On the other hand, the interest rate gap between Japan and the United States remains high.
The yen began to rise in the second half of the year, and the unwinding of carry trades caused the yen to rise. Since July, the Japanese yen has rebounded significantly, and the U.S. dollar-yen exchange rate has continued to fall from its highest point of 161.68, falling 9.4% in two months. High volatility has always been a characteristic of the Japanese yen currency, and trading factors also account for a high proportion. Especially on “Black Monday” in the first week of August, the unwinding of carry trades brought further appreciation pressure on the yen, which in turn led to more unwinding of yen positions, and the cycle continued. The main reason behind the unwinding of carry trades is the convergence of U.S. and Japanese monetary policies. On the one hand, expectations of interest rate cuts in the United States are deepening, while expectations of interest rate hikes in Japan are growing. In addition, it is also because of the market’s recent concerns about the global economic recession. The Japanese yen is a safe-haven asset and the return of funds has led to the rise of the Japanese yen.
Looking forward, Japan’s economy may have bottomed out and inflation is gradually getting back on track. We believe that Japan’s economy may have bottomed out in the second quarter of this year and may recover moderately in the future. Real GDP fell by 1.0% year-on-year in the second quarter of 2024. However, part of the reason for the negative growth is the high base in 2023. The year-on-year real GDP growth rates in the four quarters of 2023 are 2.6%, 2.0%, 1.3%, and 0.9%, respectively, reflecting a trend of high first and then low. In other words, the lower base in the next two quarters will also have an impact on economic growth. support.
What is even more noteworthy is that the final result of the “Spring Competition” in July this year was a salary increase of 5.10%, which is an increase of 1.52 percentage points compared with the final result of the 2023 Spring Competition of 3.58%. Japan released year-on-year real wage data on September 4, which showed increases for two consecutive months, which also reflects the results of the “Spring Fight.” We believe that the trend of real consumption in Japan will be supported by rising real wages in Japan.
The Bank of Japan is expected to raise interest rates in December or early next year, but the yen will still be weak in 2025. The Bank of Japan decided to keep the benchmark interest rate unchanged at 0.25% at its interest rate meeting on September 20. Considering that the Japanese economy will gradually stabilize and improve in 2025, and the inflation level will gradually return to normal. We believe that the Bank of Japan may raise interest rates to 0.50% by the end of the year or early next year. However, considering that the real interest rate of the yen is still at a very low level, this means that the foundation for the long-term strength of the yen is not solid. We expect that the U.S. economy will land moderately in 2025, and U.S. dollar interest rates will still remain at a high level. Therefore, against the background of the large absolute value of the U.S.-Japan interest rate differential, and the high probability that the Bank of Japan will raise interest rates gradually, the Japanese yen may move Moderate depreciation. We predict that the exchange rate of the US dollar against the Japanese yen will be around 145 points by the end of 2024. Entering 2025, the yen may continue to weaken, reaching 155 points by the end of 2025.
Euro exchange rate outlook: Steady rise
Since the beginning of this year, the overall trend of the euro has been to gradually strengthen amid shocks. Due to the unsynchronized monetary policy, the European Central Bank has been expected to cut interest rates earlier than the Federal Reserve since the beginning of this year, and the total number of interest rate cuts is also greater than that of the Federal Reserve, causing the overall performance of the euro to weaken in the first half of 2024. However, since April, U.S. economic data has shown decline. At the same time, the performance of the Eurozone economy in the second quarter slightly exceeded expectations. GDP increased by 0.6% year-on-year in the second quarter, and the euro rebounded. Since entering the second half of the year, the European Central Bank has taken the lead in cutting interest rates twice, lowering the main refinancing rate by 25bp to 4.25% in June, and again lowering the main refinancing rate by 60bp to 3.65% in September. Although interest rates are cut more frequently than in the United States, the euro exchange rate has been relatively volatile since July, with the euro-dollar exchange rate reaching a maximum of 1.12 during the year. We believe that the main reason is that the market has fully anticipated the two interest rate cuts by the European Central Bank, while the 50bp rate cut by the Federal Reserve slightly exceeded market expectations.
The Eurozone economy is still under a cloud. In the first and second quarters of 2024, the euro zone’s economic growth rate was 0.5% and 0.6% year-on-year respectively, which was low. The Eurozone manufacturing PMI index, released on September 23, was 44.8, lower than the expected 45.7 and the previous value of 45.8, significantly lower than the 50 boom-bust line. Since the Russia-Ukraine conflict, German industrial output has been on a downward trend. In July, the German industrial output value (excluding construction industry) index fell by 3% month-on-month, and the German industrial output value (excluding construction industry) index fell to 91.0, which is at a low level. On September 19, the Bundesbank stated that the German economy may have fallen into recession, and GDP may stagnate again or decline slightly in the third quarter. We believe the German economy may be in a mild recession. On the other hand, according to the latest S&P Global PMI index, the Eurozone S&P Global Composite PMI Index was 48.9 in September, down from 51.0 in August and falling below the 50 boom-bust line. After the Olympic Games, France’s economy also lost momentum. The initial value of France’s comprehensive PMI index in September was 47.4%, down 5.7 percentage points from August. We believe that economic activity in the Eurozone will likely continue to be under clouds for some time to come.
Looking ahead to next year, the Eurozone economy lacks long-term upward momentum. We believe that rising industrial raw material and labor costs, as well as the gradual shift of industrial investment outward, are the reasons for the continued contraction of the Eurozone economy. Geopolitical and other factors also pose challenges to euro zone exports. The European Central Bank meeting in September lowered the GDP growth forecast. The GDP growth rates in 2024/2025/2026 will be 0.8%/1.3%/1.5% respectively, which are 0.1 percentage points lower than the previous forecast.
Taking into account the weak economy, the European Central Bank will continue to cut interest rates, and the euro-dollar exchange rate will most likely remain volatile next year. Based on our judgment on the Eurozone economy next year and the relatively mild inflation performance, we believe that the European Central Bank will continue to cut interest rates. During this year, we believe that the euro exchange rate will still see a rebound at 1.10. But the trend of the euro next year still depends largely on the extent of the Fed’s interest rate cuts and the trend of the US dollar exchange rate.
Pound exchange rate outlook: getting better
The British pound has performed strongly in the first three quarters of 2024. The British pound has shown a high and volatile upward trend against the US dollar in the first three quarters of 2024, becoming the best-performing G10 currency so far this year. Interest rate factors and positive risk appetite are the keys to supporting the resilience of the British pound. Expectations of a rate cut by the Federal Reserve in the first quarter pushed non-U.S. currencies to strengthen, with GBP/USD once hitting a high of 1.2850. At the beginning of the second quarter, a rebound in U.S. inflation reduced interest rate cut expectations, while falling British inflation increased expectations for an interest rate cut. Policy divergence caused the pound to fall. British economic data improved in May, pushing the exchange rate back to 1.2850. In June, the Bank of England hinted at an interest rate cut in August, which put pressure on the pound. After the June inflation data released in July continued to stabilize at the 2% target, the pound rebounded to 1.3044 against the dollar. High point. In August, the Bank of England cut interest rates by 25 basis points to 5%, the first interest rate cut in the UK since March 2020, causing the pound to fall to 1.2665. In September, the Bank of England stayed on hold and kept the benchmark interest rate unchanged at 5%, and the pound hit 1.3314, the highest level in 2022. A new high since March this year. As of September 20, the pound has gained 4.5% year-to-date, ranking first among G10 currencies.
We expect sterling to continue its strong performance in 2025. Inflation pressure in the UK has eased but is still sticky, and the economy is developing well. The Bank of England is waiting for signs of further easing of inflation, and the pace of interest rate cuts is expected to lag behind other central banks, increasing the attractiveness of the pound. The stickiness of inflation and the momentum of economic recovery may prompt the Bank of England to adopt a more moderate “gradual” monetary policy easing. We expect the Bank of England to cut interest rates by 25 bp in November, December, February, May and August next year, bringing the interest rate to 3.75% in August 2025. The pound is expected to “get better” and maintain good trading conditions. The exchange rate against the US dollar will remain resilient and continue its upward trend. We expect GBP/USD to hit around 1.38 by the end of 2025.
Inflationary pressures have eased but remain sticky. With BOE’s continued tightening monetary policy in this round and the improvement of the overall macroeconomic environment, British inflationary pressure has significantly eased since the beginning of 2024: CPI has increased from a historical high of 11% in October 2022 to 4% in early 2024. It fell to the policy target level of 2.0% in June. However, both core and service inflation increased in August, with the overall CPI rebounding to 2.2%, still higher than the 2% policy target. Core inflation increased by 3.6% year-on-year, higher than July’s 3.3% and the expected 3.5%; service inflation increased from 3.3% in July to 3.5% expected. 5.2% rose to 5.6%. Rising transport prices were the main driver of the rebound in inflation, with air ticket prices rising 22.2% year-on-year. In addition, rents increased by 8.4% year-on-year, and as high as 9.6% in England; house prices in July increased by 2.2% year-on-year. Although the overall inflationary pressure in the UK has been eased, there are still significant price fluctuations in some areas, and the persistence of inflation will slow down the pace of future monetary easing by the Bank of England.
The British labor market is stable and the economy maintains recovery momentum, which will support the pound. The British unemployment rate has dropped for three consecutive months from 4.4% in May to 4.1% in July, and is expected to fall to 4% in August, showing that the labor market is stable and there are no signs of US-style weakness. In the second quarter of this year, the UK’s real GDP increased by 0.9% year-on-year and 0.6% month-on-month. Based on the 0.7% month-on-month growth in the first quarter, the British economy continued to maintain recovery momentum in the second quarter. At the same time, UK retail sales in August exceeded expectations by 1% month-on-month, higher than the revised 0.7% in July and the expected 0.4%. Some supermarkets and clothing retailers benefited from warmer weather and end-of-season promotions. On a year-over-year basis, retail sales increased by 2.5% in August, the highest since February 2022, exceeding July’s revised 1.5% and the expected 1.4%. Although the high interest rate environment is not conducive to economic recovery, the current economic data shows no obvious signs of recession, supporting the pace of the Bank of England’s gradual interest rate cuts and supporting the pound.
In its interest rate statement released in September, the Bank of England stated that monetary policy needs to continue to be tightening for a long enough time. Policy needs to remain tight until inflation risks recede. Bank of England Governor Bailey said in a statement, “We should be able to gradually lower interest rates over time. It is vital that inflation remains low, so we need to be careful not to cut interest rates too quickly or too much.” Therefore, if There are no substantive changes in the economy and it will adopt a “gradual” loosening of monetary policy. After the Bank of England announced its interest rate decision, the market reduced its bets on a rate cut by the Bank of England. The market now expects a reduction of 44 basis points in 2024, compared with the previous forecast of 46 basis points. Although the Bank of England started the interest rate cut cycle earlier than the Fed, given the stickiness of inflation and strong fundamentals, the pace of UK interest rate cuts is likely to lag behind the Fed, and the room for interest rate cuts may be lower than the Fed. We expect the Bank of England to cut interest rates by 25 bp in November, December, February, May and August next year, reducing interest rates to 3.75% in August 2025, while the United States does not rule out continuing one-time interest rates at the end of 2024. With the possibility of a 50 bp interest rate cut, a total of 200 bp will be cut to a level of around 3.5% in the next two years.
The Labor Party came to power in the British general election, and relevant policies are expected to further strengthen the economy. The British Labor Party regained power with an overwhelming majority in the general election in early July, taking power again after 14 years. The new government plans to finance it through a fairer tax system, avoiding deep cuts to public services and increasing taxes and borrowing. Most of the Labor Party’s economic policies can respond to public dissatisfaction, and are committed to increasing the momentum of British economic growth by focusing on traditional advantageous service industries and green economic development. Active measures may have a marginal boost to economic growth. Compared with the liberal tendency of the Conservative Party, the Labor Party pays more attention to the support of industrial policies, which may be more beneficial to business development.
The British pound is likely to continue its solid performance in 2024 and remain high and volatile. Taking into account that the UK’s economic recovery has stabilized, the Bank of England’s interest rate cuts are more gradual, and the Fed’s interest rate cuts may be more advanced. We believe that the pound against the US dollar will remain resilient and continue its upward trend. By the end of 2025, the pound against the US dollar will hit 1.38 Point nearby.
Australian dollar exchange rate outlook: a turn of events
In the first three quarters of 2024, the trend of the Australian dollar against the US dollar was ups and downs, mainly driven by the interest rate difference between Australia and the United States, and occasionally affected by the short-term impact of extreme risk events. From the beginning of the year to mid-April, the U.S. dollar index and U.S. bond yields rose rapidly, with the 2Y U.S. bond yield rising by 90bp. During the same period, the Australian economy continued to contract, and the market increased expectations for an interest rate cut by the Reserve Bank of Australia. The yield on 2Y Australian bonds fell by 30bp, and the interest rate spread widened, causing the Australian dollar to fluctuate downwards against the US dollar. In mid-April, as geopolitical risks in the Middle East intensified and U.S. inflation rebounded, the Australian dollar fell to around 0.6362. In May, as U.S. economic data weakened, 2Y U.S. bond yields fell by 35bp from their highs; while Australia’s fundamentals improved, inflation rose, and the Reserve Bank of Australia continued to release hawkish signals, 2Y Australian bond yields rebounded by 60bp. The narrowing of interest rate spreads pushed the Australian dollar to break through 0.67 against the US dollar. At the end of July, the correction of global risk assets, the unwinding of interest rate arbitrage trades using the Japanese yen as financing currency, and the decline in commodity prices impacted the Australian dollar. In August, the Reserve Bank of Australia maintained a hawkish stance, expectations of a rate cut by the Federal Reserve increased, and the Australian dollar stopped falling against the US dollar and showed an upward trend. In September, the Federal Reserve unexpectedly cut interest rates by 50bp, risk appetite improved, and the Australian dollar broke through 0.6855 to hit a new high for the year.
We believe that the Australian dollar will show a volatile upward trend in 2025, benefiting from Australia’s resilient job market, the current prudent monetary policy stance of the Reserve Bank of Australia, and the Federal Reserve’s increasingly clear path to cut interest rates. Taking into account the role of fiscal stimulus and the labor supply and housing demand brought by immigration in promoting the economy, we expect the Reserve Bank of Australia to start a monetary easing cycle in 2025: cutting interest rates for the first time by 25 basis points in the first half of 2025, and then cutting interest rates again before November. Three times, the official cash rate was lowered from 4.35% to 3.35%. The Australian dollar will “turn around” and its exchange rate against the US dollar will stabilize and shift to an upward trend. We predict that the Australian dollar is expected to break through the 0.70 mark and reach 0.72 by the end of 2025.
It will take time to control inflation, and the interest rate gap between Australia and the United States will narrow and is expected to reverse. Under the current round of tightening monetary policy by the Reserve Bank of Australia, inflationary pressure in Australia has been significantly alleviated. The Bank of Australia has raised interest rates 13 times since May 2022, pushing the benchmark interest rate to 4.35%. The CPI inflation rate has dropped from the monthly peak of 8.4% at the end of 2022 to below 4%. However, Australian inflation will rebound in 2024. In the second quarter of 2024, Australia’s CPI inflation rate reached 3.8%, showing a clear upward trend compared with 3.6% in the first quarter. Judging from the monthly CPI indicator, Australia’s latest CPI inflation rate in July was 3.5%, a decrease of 0.3 percentage points from June, and still significantly exceeded the RBA’s inflation target range of 2-3%. RBA Chairman Bullock said at a press conference in September that progress in core inflation is slow. Due to the federal and state relief on living expenses, the CPI inflation rate in August may be lower than 3.0%, but this does not truly reflect the underlying inflation trend. . According to the Reserve Bank of Australia’s forecast, the inflation rate will not continue to return to the target level until 2026, and it will still take time to control inflation. We believe that the Reserve Bank of Australia will not initiate monetary easing this year, and the path and space for the Federal Reserve to cut interest rates will become increasingly clear. By then, the interest rate gap between Australia and the United States will further narrow and is expected to reverse, which will provide strong support for the Australian dollar.
Australia’s job market is resilient and is above “full employment” levels. Boosted by part-time jobs and government-subsidized jobs, Australia added 47,000 new jobs in August, continuing to exceed expectations of 26,000. The unemployment rate was the same as in July, stable at a low level of 4.2%. The labor force participation rate held steady at 67.1%, remaining at a record high, keeping the job market steady amid a cooling economy and an influx of immigrants. Relative to historical standards, Australia’s labor market remains tight and above “full employment” levels. The surge in state and federal government spending is an important reason for supporting the resilience of the job market, with government-funded health care, education and public administration sectors being the main drivers of job growth. At the same time, Australia’s retail industry is also resilient, with a year-on-year growth of 2.3% in July. Household consumption growth increased by 0.8% month-on-month in July, and is expected to pick up in the second half of the year. We believe that although Australia’s GDP growth will be slightly weak in 2024, the resilience of the job market will be conducive to economic stabilization and support the rise of the Australian dollar.
The statement released by the Reserve Bank of Australia in September stated that the top priority is to return inflation to the target. Reserve Bank of Australia Chairman Bullock reiterated his vigilance against inflation at a press conference on September 24, stating that “the RBA Board does not believe that there is a possibility of an interest rate cut in the near future and must remain vigilant to deal with the risk of upward inflation. Interest rates will remain unchanged for a period of time.” changes and has not considered the extent of the final possible interest rate cut.” Therefore, the Reserve Bank of Australia will still maintain a tightening monetary policy for a period of time. Taking into account the Australian government’s fiscal stimulus to support employment and consumption, as well as the supply brought by immigrants to the labor market and the demand brought by the housing market, we believe that the Australian central bank will start to cut interest rates for the first time in the first half of 2025 by 25 basis points, and then to It cut interest rates three more times before November, lowering the official cash rate from 4.35% to around 3.35%.
The Australian dollar is expected to turn around and show an upward trend. Australia’s job market is resilient, and the Reserve Bank of Australia will still need some time to control inflation, while the Federal Reserve’s more advanced interest rate cuts may bring about a reversal in the interest rate differential between Australia and the United States. We believe that the Australian dollar will have more resilience against the US dollar and show an upward trend. By the end of 2025, the Australian dollar is expected to break through the 0.70 mark and reach 0.72.
(This article thanks Zhang Xiaozijiao for his contribution)