Investing.com — There are three potential scenarios for the Australian dollar through mid-2025 depending on US policy under President-elect Trump, Bank of America (BofA) analysts say in a note, detailing a wide range of outcomes for the future is mentioned. currency, due to the uncertainties in world trade.
Under BofA’s base case, the AUD is expected to weaken to US$0.63 (USD) by mid-2025. This forecast assumes a continuation of tariff-driven trade policies similar to those of Trump’s first term, alongside moderate gains in US stocks, with double-digit returns expected.
A gradual increase in rates between the US and China, coupled with a devaluation of the (CNY), is expected to put downward pressure on the AUD. Industrial metals, a key driver of Australia’s economy, are also expected to decline, adding to challenges for the currency.
BofA’s second and more serious scenario envisions an outright trade war, with tariffs significantly disrupting global trade. In this situation, the AUD could fall to USD 0.55, the bank warned. The report cites a sharp devaluation of the CNY and falling industrial metal prices as major headwinds.
This scenario assumes a broader decline in global equity markets and a more pronounced impact on Australian growth and inflation, potentially keeping the AUD below USD 0.60 for an extended period of time.
Third, if the new administration were to adopt policies similar to Ronald Reagan’s approach of the 1980s – characterized by tax cuts, deregulation and limited trade disruptions – the AUD could rise to USD 0.70, BofA analysts said. Such a policy could fuel a rally in US equities and stabilize the CNY, creating a favorable environment for the Australian currency.
BofA highlights the AUD’s heightened sensitivity to global risk sentiment and its evolving relationship with commodity prices and the CNY. Analysts emphasize that significant shifts in US policy are likely to shape the AUD’s trajectory in the near term.
