The Australian dollar fell to a 10-month low of 63.57 cents versus the greenback last week, with asset managers holding a record net short position of 94,107 contracts on the currency. Growth concerns in China, the nation’s largest export market, and higher US yields have made it the worst-performing G-10 currency this quarter.
A potential final rate hike by the RBA is currently underpriced by markets, said Simon Harvey, head of FX Analysis at Monex Europe in London. “In the fourth quarter, Chinese officials are more likely to embark on more direct stimulus should the 5% growth target seem unattainable, which would immediately boost risk sentiment,” he added.
Domestic factors aside, given the Australian dollar’s correlation with the yuan, Macquarie Group sees it benefiting from China’s policies, such as influencing the markets to discourage yuan selling, and prospects of Federal Reserve rate cuts in 2024.