The Australian dollar (AUD) is poised to experience various fluctuations through mid-2025, largely shaped by the U.S. economic policies under the incoming presidency of Donald Trump. Analysts from Bank of America (BofA) have outlined three distinct scenarios regarding the future of the AUD, each characterized by varying assumptions about trade dynamics and global financial conditions. Understanding these potential outcomes is critical for investors and policymakers alike, given the AUD’s intrinsic ties to global commodities and risk sentiment.
In BofA’s baseline scenario, the AUD is projected to weaken to approximately 0.63 USD by mid-2025. This forecast operates under the premise that tariff-driven trade policies will persist, resembling those implemented during Trump’s initial term. With the U.S. equity market expected to perform moderately well, buoyed by anticipated double-digit returns from the S&P 500, the ongoing imposition of tariffs on China may continue to depress the AUD. Analysts foresee a likely scenario where heightened tariffs and a devalued Chinese yuan (CNY) will further exacerbate challenges for the Australian currency. Furthermore, a downturn in industrial metal prices, which are vital to Australia’s economic performance, will add additional strain on the AUD.
A more alarming projection arises in BofA’s second scenario, which envisions a possible full-scale trade war. Here, the analysts anticipate that a significant escalation in tariffs could contribute to a dramatic decline in the value of the AUD, potentially falling to around 0.55 USD. The confluence of a sharply devalued CNY and drastically reduced industrial metal prices create substantial headwinds for Australia, alongside broader market declines that adversely affect Australian growth and inflation. Under this dire scenario, the AUD is poised to remain below 0.60 USD for an extended duration, leading to ripple effects throughout Australia’s economy.
Conversely, BofA outlines a third scenario where policy changes resemble the economic strategies of Ronald Reagan during the 1980s. Should the new administration implement policies facilitating tax reductions, deregulation, and minimal trade interruptions, the value of the AUD could potentially rise to 0.70 USD. This upbeat scenario posits that supportive economic measures would encourage a rally in U.S. equities, along with a stabilization of the CNY, ultimately creating a more favorable environment for the Australian currency.
Significantly, BofA underscores the heightened sensitivity of the AUD to shifts in global risk sentiment. The analysts point out that the AUD’s performance is not merely a reflection of domestic economic indicators but is deeply intertwined with global commodity prices and the movements of the CNY. As the international economic landscape continues to evolve, policy decisions made in the United States will likely play a crucial role in guiding the trajectory of the AUD in a complex global market.