Rabobank says the latest rebound in the U.S. dollar is being driven largely by short-covering, rather than a shift in underlying fundamentals, as much of the bad news and anticipated Federal Reserve rate cuts were already priced in. The bank expects this adjustment phase to extend in the near term, allowing markets to reassess U.S. fundamentals once normal data releases resume.
The absence of official U.S. economic data amid the government shutdown is making it difficult to fine-tune expectations around Fed policy, Rabobank notes. Meanwhile, U.S.–China trade developments could influence both inflation and growth forecasts in the coming months, potentially shaping the dollar’s direction into year-end.
Further ahead, Rabobank warns that questions over Fed independence could return to the spotlight in the spring as Chair Jerome Powell’s term nears its end. Such concerns, it says, would point to scope for a broad-based dip in the U.S. dollar, creating upside potential for the Australian dollar.
Rabobank expects AUD/USD to hold a choppy range near current levels, around the 0.65 area, over the next one to three months, as position-driven dollar strength continues.
- However, the bank still sees scope for another move higher in AUD/USD into the new year, targeting 0.68 on a 12-month view as market attention shifts back toward policy risks and trade developments.
