According to the latest forecast from CIBC Capital Markets, the AUD/USD faces downside risk in Q4 2023. This is based on the fundamental outlook which remains difficult for the Australian economy.
In the medium term, the sell-off in the AUD/USD will likely reverse but when it comes to the bigger picture, it remains bearish. According to CIBC's analysts, there are many risks faced by the Australian economy, such as weak Chinese growth, slow global demand, and weakness in the Aussie economy.
AUD Under Pressure From Chinese Economic Weakness
On the other hand, the one particular factor that supports a bullish AUD is the actions taken by the RBA. If the Australian central bank stays hawkish and introduces new rate hikes, it will help the AUD currency to limit its downside.
However, a hawkish RBA will require strong employment reports and CPI readings that are in line with the RBI target range. If both of these factors are absent, the only thing going well for the Australian Dollar will be removed from the equation. In that case, the bias will be shifted to bearish once again.
For now, the AUD/USD pair trades near the 0.64 level, while the CIBC has set a forecast for Q4 2023 near the 0.63 level. For the first quarter (Q1) of 2024, the AUD/USD price forecast is also set for 0.63. So, if we take the CIBC forecast into account, it appears that the AUD/USD will experience a downside, but it will be limited.
One surprise factor that could prop up the AUD currency is the return of growth in the Chinese economy. Given the trade and economic ties of Australia with China, it will also help support the Aussie's economy. And we all know that a stronger Australian economy will allow more legroom for the RBA to introduce 1 or 2 additional rate hikes.
So, for now, the AUD/USD directional bias is towards the downside with little chance of upside movement.