Australian Dollar’s Top Forecasters Say Winning Run Likely Over

The Australian dollar's forecasters are signaling that its winning streak may be ending. The currency experienced a two-month rally in September, but top experts now warn that bets on another Reserve Bank of Australia interest rate hike have reached an extreme. The Aussie dollar could drop by as much as 3.7 percent by the end of the year, according to SB1 Markets AS.

Banco Santander SA predicts the currency will reach 70 US cents by year-end, while Danske Bank AS expects it to fall to that level by December. The dollar closed at 71.64 US cents on Friday, August 28. The bearish outlook follows a more than 3.5 percent gain in the Aussie since the start of July, driven by persistent inflation and expectations of a rate hike from the RBA.

However, economic data due this week could challenge those predictions, with some analysts foreseeing no near-term tightening from the central bank. Santander's head of Group-of-10 currency strategy, Stuart Bennett, noted that the Aussie has been a strong performer in Q3, presenting opportunities for profit-taking. "We still think the Reserve Bank of Australia will stand pat, so some paring back of rate-hike expectations should help by year-end," Bennett stated.

SB1 Markets also believes that any resolution to the Middle Eastern conflict will help lower oil prices, negatively impacting commodity-exposed currencies like the Australian dollar. If oil and gas prices surge before the end of the year, it could undermine the rally. The Aussie's recent gains have also benefited from the US dollar's weakness, as efforts by Treasury Secretary Scott Bessent to curb long-term bond yields raise questions about the greenback's appeal as a safe haven.

Yet, the support from the Federal Reserve's hawkish rhetoric at the Jackson Hole conference may prove less lasting. Antti Ilvonen, a strategist at Danske Bank, ranks third in Bloomberg's forecaster rankings and maintains that the Reserve Bank will likely remain on hold in September, delaying the hike decision until Q4. Technical indicators suggest that the Aussie's bullish momentum is being stretched, while seasonality also favors a pullback.

Historical data shows that the currency has typically fallen by an average of 1 percent in September over the past five years. Santander's Bennett warns that the currency may be "drifting into overbought territory" and could face resistance if it moves higher.