Australian Dollar Should be a Top Pick Next Year, Says Morgan Stanley - Pound Sterling LIVE

What the desk is arguing

The desk anticipates a pronounced bullish trend for the Australian dollar in the coming year, driven by shifting monetary policy and stronger commodity dynamics. Per the full note from Morgan Stanley, factors such as attractive yield differentials and a strengthening Chinese economy are set to enhance demand for AUD.

Central to this outlook is the projected shift by the RBA towards a less accommodative stance as inflation concerns mount, encouraging a tightening narrative. If the RBA tightens policy in line with expectations, based on current forecasts, this could prominently elevate the AUD's status against its rival currencies.

Where it sits in our coverage

Currently, our consensus target for AUD/USD sits at 1.075, with projections varying among major investment firms:

• J.P. Morgan: 1.10 (Mar 26)
• Bank of America: 1.04 (Mar 26)

This view aligns with Morgan Stanley's bullish stance on AUD, indicating that their expectations mirror the higher end of our consensus range, suggesting substantial upside potential in the near term.

How other firms see it

Several firms, including J.P. Morgan, show alignment with a bullish outlook for the AUD, reflecting confidence in Australian economic resilience. In contrast, Bank of America holds a more cautious stance, projecting a lower target for the currency.

The broader view indicates that the direction of the AUD could be influenced by commodity price movements and the RBA's forthcoming decisions regarding interest rates, which will have ripple effects on pairs like AUD/NZD and AUD/JPY as well.