**Australian Dollar Forecast: Key Scenarios through Mid-2025**
As we move further into 2024, forex traders should be mindful of the potential movements of the Australian dollar (AUD) based on evolving U.S. policies, particularly under the leadership of President-elect Trump. Analysts from Bank of America (BofA) have outlined three significant scenarios that could impact the AUD through mid-2025, reflecting the uncertainties surrounding global trade dynamics.
In the baseline scenario, BofA predicts a gradual decline of the AUD to 0.63 USD. This prediction is contingent on the continuation of tariff policies akin to those seen during Trump’s first term and assumes moderate growth in U.S. equities. The S&P 500 is projected to deliver respectable double-digit returns, though the AUD may falter under the influence of increasing U.S.-China tariffs and a potential devaluation of the Chinese yuan (CNY). Furthermore, the anticipated downturn in industrial metal prices, which are crucial for the Australian economy, could further weaken the currency.
The second scenario presented is more troubling, positing a full-scale trade war that could significantly disrupt global trade. In this context, the AUD might plummet to as low as 0.55 USD. Contributors to this potential decline include a sharp CNY depreciation and substantial drops in industrial metal prices, leading to adverse effects on Australian economic growth and inflation. Traders should be cautious, as in this scenario, the AUD could remain under 0.60 USD for an extended period, driven by broader declines in global equity markets.
Conversely, the third scenario highlights a more optimistic outlook, contingent on the incoming administration implementing policies reminiscent of the Reagan era of the 1980s, characterized by tax cuts, deregulation, and minimal trade disruptions. Under such circumstances, the AUD could appreciate to as high as 0.70 USD. This scenario suggests a robust rally in U.S. equities, the stabilization of the CNY, and a favorable trading environment for the AUD.
As highlighted by BofA, the AUD remains particularly sensitive to shifts in global risk sentiment and its intricate relationship with commodity prices, especially in conjunction with the CNY’s performance. Forex traders should keep a close watch on U.S. policy developments, as these will invariably shape the trajectory of the AUD in the coming months.
In summary, the AUD’s outlook for mid-2025 is fraught with uncertainty, driven largely by external economic policies and global trade relationships. Traders should prepare for a variety of potential scenarios and consider how shifts in the political landscape could influence market conditions and currency valuations in the foreign exchange market.
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