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Investing.com - The Australian dollar retreated from its highest level since October 2024 at 0.66, with broad U.S. dollar strength weighing on the currency pair, according to a new report from UBS.
Recent macroeconomic data from Australia indicates a pickup in consumer and housing construction activity, while credit growth and house prices are gathering positive momentum, the investment bank noted. Inflation data remains in line with central bank expectations, with the Reserve Bank of Australia’s preferred trimmed mean measure easing to 0.6% quarter-over-quarter and 2.7% year-over-year.
UBS forecasts the RBA will implement rate cuts in August and November, with a final cut in February 2026 to a terminal rate of 3.1%. This projection differs slightly from money markets, which are pricing nearly three cuts by year-end and a terminal rate just below 3%.
For Australian dollar-based investors, UBS recommends considering its forecast of AUD/USD reaching 0.70 by mid-2026, suggesting favorable conditions for hedging U.S. dollar long exposure. The bank sees opportunities to hedge exposures to major low-yielding pairs such as the Singapore dollar, Swiss franc, and Chinese yuan.
UBS also advises continued hedging of British pound exposure, citing expectations that the Bank of England will implement more rate cuts than the RBA, while domestic macroeconomic conditions in the UK remain challenging. The bank identifies 0.62 as a strong technical support level for the AUD/USD pair.
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