Investing.com– UBS said it expected the Reserve Bank of Australia to potentially hike interest rates in August following a series of inflation surprises, and that the Australian dollar (AUDUSD) was likely to benefit from such a scenario in the long term.
Australian inflation surprised to the upside for three consecutive months, ramping up expectations that the RBA will have to do more to bring down inflation. CPI rose to 4% in May and was well above the RBA’s 2% to 3% annual target.
UBS expects the RBA to hike its by 25 basis points to 4.6% if second quarter CPI shows an at least 1% quarter-on-quarter increase.
But beyond the CPI data, UBS argued that strong retail sales and labor data could also spur a hike from the RBA.
“The most important question is whether the data has surprised the RBA enough to hike again,” UBS analysts wrote in a note. They also forecast a delay in the RBA’s plans to cut rates, to April 2025 from February 2025.
To this end, UBS forecast a positive long-term trend for the Australian dollar, specifically the pair. UBS expects the pair to reach $0.68 by December, and to hit $0.70 by June 2025.
But they warned that the currency still faced some downside risks around $0.66, its current level. They also recommended staying long on the AUD over the New Zealand dollar, and targeted at NZ$1.15 over the next 12 months.
