AUD/USD has led G10 currencies year-to-date, supported by speculation that the RBA could be the first to hike rates, though recent comments from Deputy Governor Hauser suggest a more cautious approach. While a short-term dip toward 0.66 is possible amid re-calibration of rate expectations, strong fiscal and growth fundamentals point to AUD/USD rising toward 0.69 over the next 12 months, Rabobank's FX analyst Jane Foley reports.

RBA signals caution, slowing market rate hike speculation

"AUD/USD has been in an uptrend since late November. Despite a poor performance today, the AUD is also the best performing G10 currency in the year to date. Much of this strength has been garnered from market speculation that the RBA could be the first G10 central bank to hike rates this cycle, in view of Australia’s sticky inflation issue."

"That said, market talk of an early rate hike was undermined this morning by comments from RBA Deputy Governor Hauser which signalled policymakers may be prepared to act cautiously in the battle against inflation. It is Rabobank’s view that the RBA will be slower to tighten policy than current market expectations."

"That said, relative to its G10 peers, Australia boasts a decent fiscal position and growth outlook which should allow the AUD to benefit from diversification trades in the year ahead. While we see scope for AUD/USD to dip back to the 0.66 level on a 1-to-3-month view on a re-calibration of RBA rate hike speculation, we continue to expect AUD/USD to move higher to 0.69 on a 12-month view."