Rabobank sees some short-term issues for the Australian dollar (AUD) before it starts to rise again. They believe that in the next one to three months, extra support for the US dollar could push the AUD/USD exchange rate down to about 0.65. However, Rabobank’s prediction for this exchange rate over the next year is still 0.89.

RBA and Fed Policies

This analysis focuses on the monetary policies of the Reserve Bank of Australia (RBA) and the Federal Reserve (Fed). Even though the GDP performed well in the second quarter, Rabobank expects the RBA to cut interest rates by 25 basis points in meetings scheduled for November, February, and May. In contrast, the Fed is likely to reduce rates by a total of 125 basis points by the end of 2026. Market projections show only a 43 basis point cut from the RBA in the next six months, while the Fed is expected to have about 88 basis points of easing. Rabobank warns that if traders misunderstand the RBA’s potential cuts or the Fed’s risks, the US dollar could gain strength against the Australian dollar in the short term. In the upcoming weeks, the Australian dollar may face challenges before it strengthens again in the long term. There’s a good chance traders will start buying the US dollar, which could lower the AUD/USD pair from its current level near 0.68 to around 0.65. This could be a short-term opportunity for those looking to trade during this dip. The outlook hinges on central bank actions. We believe the RBA may need to cut interest rates more aggressively than the current market expectations, especially with the August 2025 inflation data showing a cooling trend. Although the RBA kept its cash rate at 4.35% in its recent meeting, we forecast cuts starting in November.

Market Discrepancies

At the same time, the market might be incorrectly assuming that the Fed will act quickly. While the August US jobs report was weaker, Fed officials insist they need more clear evidence before they change their restrictive policy. This difference between market assumptions and what the central banks are likely to do will likely strengthen the US dollar over the next one to three months. For derivative traders, this strategy means positioning for a lower AUD/USD exchange rate. They could buy put options on the Australian dollar or engage in short AUD/USD futures contracts. The goal is to profit from a decline towards the 0.65 target by the end of the year. This approach is intended for the short term, as we expect a strong rebound over the next year. A similar pattern occurred in 2022, where initial US dollar strength eventually gave way once the Fed’s policy direction became clearer. We continue to believe the Australian dollar will recover significantly, maintaining our 12-month target for the AUD/USD exchange rate at 0.89. Create your live VT Markets account and start trading now.

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