OCBC strategists Sim Moh Siong and Christopher Wong note that the Australian dollar (AUD) has been held back by a keen decline in confidence despite hawkish rhetoric from the Reserve Bank of Australia (RBA). They emphasize that sentiment and spending are only loosely related, so the tightening of monetary policy may continue unless consumption weakens significantly. AI-driven commodity price increases support their view that AUD should continue to outperform.

Sentiment-weighted AUD, supported by commodities

“Despite hawkish rhetoric from RBA deputy governor Andrew Hauser, the Australian dollar has been stalled as fears of stagflation resurface amid a sharp deterioration in confidence. This has prompted a reassessment of how far the RBA can tighten monetary policy this year.”

“Consumer sentiment fell 12.5% ​​m/m – the biggest decline since the pandemic – pushing the index back to its crisis-era level of 81. However, sentiment and consumption are only weakly correlated.”

“The RBA will only limit rate increases if this bleak situation translates into significantly weaker spending.”

“We maintain that the AUD should continue to outperform, supported by an AI-driven commodities boom in markets that ensures the RBA’s hawkish stance remains sustainable.”

(This article was created with the support of an artificial intelligence tool and has been reviewed by an editor.)