Image © Adobe Images
Australian Dollar to advance on U.S. Dollar, but will be more constrained against the Pound.
Deutsche Bank has raised its forecasts for the Australian dollar, arguing that stronger domestic growth and a shift in global positioning make the currency undervalued at current levels.
The bank says AUD/USD could climb into the 0.70–0.72 range over the next six months, supported by both commodity flows and improving terms of trade.
"Where does Aussie belong now? Our answer is higher," Deutsche Bank wrote in its latest FX outlook, adding that the currency is still "trading at a discount relative to fundamentals."
The bank highlighted a convergence of supportive factors, including resilient Australian consumption, stable labour markets, and the Reserve Bank of Australia’s reluctance to cut rates aggressively.
"Relative growth trends versus the U.S. point to a stronger AUD profile," the report said.
Above: AUD/USD since 2024.
The research notes that speculative positioning in the Aussie is light, leaving scope for inflows should global investors rotate toward higher-yielding currencies.
Deutsche also emphasised that cyclical headwinds for the U.S. dollar could reinforce AUD upside.
"Softening U.S. growth indicators and cooling inflation mean the dollar premium is unlikely to persist," the strategists said.
On a tactical horizon, the bank sees AUD/USD testing resistance levels near 0.70 before consolidating.
"Breaking above 0.70 would represent a technical confirmation that AUD is on a stronger trajectory," Deutsche wrote.
The outlook for GBP/AUD is seen as more mixed, with Deutsche arguing that sterling retains support from the Bank of England’s cautious stance.
"Sterling’s policy anchor means GBP/AUD may not fall as sharply as AUD/USD rises," the report noted, though the cross could still drift lower if Aussie momentum accelerates.
Above: GBP/AUD since 2024.
Deutsche analysts also pointed to external risks, including China’s economic trajectory and commodity demand.
"China remains a swing factor for the Aussie, and a sharper slowdown there could limit upside," the bank said.
Nevertheless, the report stressed that with Australian fundamentals improving and U.S. exceptionalism fading, the risk-reward profile favours more AUD strength into 2026.
"We continue to view AUD as undervalued, and our forecast revision reflects greater confidence that the currency will close the gap," Deutsche concluded.
Markets now look to next week's Australian retail sales data and the Federal Reserve’s September meeting for near-term catalysts.