Investing.com — UBS said it expected the Reserve Bank of Australia may raise rates in August after a series of inflation surprises, and that the Australian dollar (AUDUSD) would likely benefit from such a scenario in the long term.
Australian inflation has surprised positively for three months in a row, raising expectations that the RBA will have to do more to reduce inflation. The CPI rose to 4% in May, well above the RBA’s annual target of 2% to 3%.
UBS expects the RBA to raise rates by 25 basis points to 4.6% if the CPI shows a quarter-on-quarter increase of at least 1% in the second quarter.
But beyond the CPI data, UBS argued that strong retail sales and employment data could also drive a rise in the RBA.
“The key question is whether the data has surprised the RBA enough to move higher again,” UBS analysts wrote in a note. They also predict a delay in the RBA’s plans to cut rates, until April 2025 from February 2025.
Given this, UBS predicts a positive long-term trend for the Australian dollar, and especially for the pair. UBS expects the pair to reach $0.68 in December and reach $0.70 in June 2025.
But they warned that the coin still faced some downside risks around $0.66, its current level. They also recommended remaining long the AUD over the New Zealand dollar, targeting NZ$1.15 over the next twelve months.
