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OCBC strategists Sim Moh Siong and Christopher Wong note that the Australian Dollar (AUD) has been restrained by a sharp slump in confidence despite hawkish Reserve Bank of Australia (RBA) rhetoric. They highlight that sentiment and spending are only loosely linked, so tightening can continue unless consumption weakens materially. An AI-driven commodity upswing underpins their view that AUD should continue to outperform.
AUD weighed by sentiment, supported by commodities
“Despite hawkish rhetoric from RBA Deputy Governor Andrew Hauser, the AUD was held back as stagflation fears resurfaced amid a sharp deterioration in confidence. This has triggered a reassessment of how far the RBA can tighten this year.”
“Consumer sentiment collapsed 12.5% MoM—the largest fall since the pandemic—pushing the index back to crisis-era levels at 81. But sentiment and consumption are only weakly correlated.”
“The RBA would only curb rate hikes if this gloom translates into materially weaker spending.”
“We maintain that the AUD should continue to outperform, underpinned by the AI-fuelled commodity boom, which lends durability to the RBA’s hawkish bias.”
