HSBC economists note that “risk-on” G10 currencies, including the Australian Dollar (AUD), have outperformed the US Dollar (USD) this quarter on improved risk sentiment linked to Middle East de-escalation hopes. They highlight the Reserve Bank of Australia’s (RBA) third consecutive 25bp hike to 4.35%, keeping it an outlier among G10 central banks, and expects a wait-and-see stance unless further domestic fiscal support prompts additional tightening.

Australian Dollar benefits from RBA stance

"So far this quarter, “risk-on” G10 currencies, such as the AUD, NOK, and NZD have outperformed against the USD, helped by renewed optimism around a potential de-escalation of tensions in the Middle East."

"In addition to the broader shift in risk appetite, both the AUD and NOK appear to have benefited from domestic policy developments."

"On 5 May, the Reserve Bank of Australia (RBA) delivered a third consecutive 25bp rate hike, taking the policy rate to 4.35%, in line with market expectations."

"This keeps the RBA an outlier among G10 central banks."

"Our economists expect the RBA to remain on hold in a “wait-and-see” mode; however, further domestic fiscal support could increase the likelihood of additional tightening."

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