OCBC strategists Sim Moh Siong and Christopher Wong stay constructive on the Australian Dollar (AUD) despite recent risk-off pressure from higher energy prices. They highlight above-target inflation, resilient domestic activity and a more hawkish Reserve Bank of Australia (RBA) as key supports. Structural flows from rising Australian super-fund hedge ratios also help, with AUD/USD now expected to reach 0.75 by end-2026.

RBA stance and flows support AUD

"Risk-off sentiment stemming from the energy shock has weighed on the risk-sensitive AUD, despite Australia’s role as a major natural-gas exporter."

"Australia’s above‑target inflation and resilient domestic activity have prompted a more hawkish RBA response. Although markets have largely priced in further rate hikes, their actual delivery should still support the AUD through strengthened central bank credibility."

"Importantly, Australia’s hawkish rate pricing appears more durable than Europe’s, given the economy’s relative insulation from energy supply risks."

"Structural flows add further support. Australian super‑fund hedge ratios continue to drift higher—4Q25 data showed a 1.4‑percentage‑point rise, with media reports signalling additional increases ahead. These flows should provide a steady tailwind for the AUD."

"While uncertainty remains elevated, we stay constructive on the currency and now expect AUD/USD to reach 0.75 by end‑2026."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)