Aussie greenback outlook hinges on US commerce coverage below Trump, says BofA

Investing.com– There are three potential situations for the Australian greenback via mid-2025, contingent on U.S. coverage below President-elect Trump, analysts at Financial institution of America (BofA) stated in a observe, stating a variety of outcomes for the forex, reflecting uncertainties in international commerce.

In BofA’s baseline situation, the AUD is anticipated to weaken to 0.63 U.S. greenback (USD) by mid-2025. This forecast assumes a continuation of tariff-driven commerce insurance policies just like Trump’s first time period, alongside reasonable features in U.S. equities, with the S&P 500 projected to ship double-digit returns.

A gradual improve in U.S.-China tariffs, coupled with a devaluation of the Chinese language yuan (CNY), is anticipated to exert downward strain on the AUD. Industrial metals, a key driver for Australia’s financial system, are additionally anticipated to say no, including to the forex’s challenges.

BofA’s second, and a extra extreme situation envisions a full-blown commerce battle, the place tariffs considerably disrupt international commerce. On this state of affairs, the AUD may tumble to 0.55 USD, the financial institution warned. It cites, a pointy devaluation of the CNY and plummeting industrial steel costs, as main headwinds.

This situation assumes broader international fairness market declines and a extra pronounced impression on Australian development and inflation, probably maintaining the AUD under 0.60 USD for an prolonged interval.

Thirdly, if the incoming administration adopts insurance policies akin to Ronald Reagan’s Nineteen Eighties strategy—characterised by tax cuts, deregulation, and restricted commerce disruptions—the AUD may climb to 0.70 USD, BofA analysts stated. Such insurance policies may spur a rally in U.S. equities and stabilize the CNY, creating a good surroundings for the Australian forex.

BofA underscores the AUD’s heightened sensitivity to international danger sentiment and its evolving relationship with commodity costs and the CNY. Analysts emphasize that vital shifts in U.S. coverage will possible dictate the trajectory of the AUD within the close to time period.