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Australian dollar forecast

Find out about the outlook for the AUD in 2023 and the key factors driving its performance.

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What is the Australian dollar forecast for 2023? Will it increase in value relative to major currencies like the US dollar and the euro, or will the pressure of inflation and an economic slowdown push it down?

AUD outlook for 2023

The Aussie dollar has been on a downward trajectory for the majority of 2023. After starting the year at 0.68 USD, it climbed to a high of 0.72 USD in late January before falling and hovering around the 0.64 - 0.66 USD mark.

Against the Euro, 1 AUD has fluctuated in the 0.59 - 0.63 EUR range over the last six months. Meanwhile, it weakened slightly against the British pound in the first half of the year, dropping to 0.50 GBP in August 2023, down from a high of 0.57 GBP in February.

However, after a tough year for the dollar, experts are slightly more optimistic in their forecasts for the remainder of 2023. As China attempts to stimulate their economy, it's hoped that this will have a positive effect on the Australian dollar through higher commodity prices.

Despite this cautious optimism, there's plenty of uncertainty surrounding the economy at the moment. Concerns about future interest rate rises, both here and in the US, are expected to be a key factor in the next two months. And with the threat of a global recession looming too, how the AUD performs in the short-term remains to be seen.

Key factors impacting the Australian dollar

There are several key factors driving the performance of the Australian dollar, the major ones include:

  • RBA interest hikes. From a record low of 0.10% in April 2022, the Reserve Bank has made regular increases to the official cash rate, which sits at 4.10% as of October 2023. Interest rate hikes tend to increase foreign investment demand for the AUD, which helps drive the value of the Aussie dollar higher.
  • Inflation. The Reserve Bank's inflation target aims to keep annual consumer price inflation between 2 and 3%. However, the Consumer Price Index (CPI) rose 5.4% in the twelve-month period ending in September, representing a notable increase compared to the 4.9% increase in July. High inflation tends to drive the value of the Aussie dollar down due to reduced purchasing power.
  • Economic slowdown. With rising interest rates and inflation impacting economies around the world, there's the very real threat of a global recession. This could lead to reduced demand from China and other Asian countries for Australia's key exports, pushing the value of the Australian dollar down.
  • Mining. Commodities are a major driver of the Australian economy, with iron ore, coal and other commodities responsible for 67% of all exports. Increases in demand for commodities can drive the value of the AUD up, but falling prices can have a negative effect.
  • Farming. Agriculture is another important driver of the Australian economy and made up 11.6% of the nation's goods and services exports in 2021-22. The impacts of climate change could affect the farming industry in the years to come, while controversy surrounding live animal exports could also affect cattle and sheep exports.

AUD vs USD forecast

At the start of 2023, 1 AUD bought 0.68 USD. The AUD recovered against the USD in June reaching $0.687 but since then it's hit a new low for the year at 0.634 USD.

According to the Commonwealth Bank, "The main reason for the fall in AUD is the fall in commodity prices. China's Two Sessions meetings did not deliver policy stimulus that we expected to support metal prices." With other factors like falling commodities prices and recessions in major economies taking their toll, CommBank's research is predicting more AUD/USD weakness in 2023.

But Australia's other major banks are a little more optimistic. Westpac is predicting the Aussie dollar to be trading at 0.69 USD in December 2023, while NAB is forecasting a 1 AUD = 0.74 USD exchange rate by the end of the year.

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AUD vs Euro forecast

Russia's invasion of Ukraine meant that 2022 was a volatile year for Europe, and the Australian dollar gained ground on the euro. However, economists are expecting the AUD/EUR rate to stabilise throughout the rest of 2023.

NAB's Australian dollar forecast is predicting the AUD to trade at 0.63 EUR for the rest of 2023, while the Commonwealth Bank is also expecting minimal change to the AUD/EUR rate.

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AUD vs GBP forecast

The Australian dollar has weakened against the pound in 2023, falling from 0.57 to 0.53 GBP. Factors affecting the AUD/GBP rate in 2023 are expected to include the strength of China's economic recovery, including the Chinese government's stimulus package, as well as stubbornly high inflation in the UK.

NAB is forecasting 1 AUD to trade at 0.56 GBP in December 2023 and Westpac expects the AUD to trade at 0.54 GBP by the end of the year.

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