As we look towards the mid-2025 horizon, the Australian dollar (AUD) finds itself at the center of a multifaceted economic forecast. This analysis recognizes the profound implications of U.S. policies, especially under the prospective administration of President-elect Trump. The Bank of America (BofA) has provided critical insights by outlining three distinct scenarios that could shape the AUD’s value against the U.S. dollar, each influenced by varying degrees of global economic interactions and internal policy decisions.
In the most likely scenario, dubbed the baseline forecast by BofA, the AUD is projected to depreciate to 0.63 USD by mid-2025. This projection is premised on the anticipation that the trade tensions will persist, predominantly through tariff-based measures reminiscent of Trump’s previous term in office. Should the global equity markets, particularly the S&P 500, achieve stable but moderate gains, it would indicate that while U.S. equities succeed, the Australian economy may lag, leading to increased pressure on the AUD. Compounding this is the expectation of ongoing tariff increases between the U.S. and China, potentially devaluing the Chinese yuan (CNY) and subsequently affecting Australia’s key export sectors, including industrial metals, which could see decreased demand and pricing under these conditions.
The second scenario outlined presents a far gloomier outlook. If global trade dynamics deteriorate into a comprehensive trade war, the AUD could plummet to as low as 0.55 USD. This pessimistic forecast arises from the likelihood of global tariffs sharply disrupting trade and severely impacting industrial metal prices, crucial components of Australia’s economic performance. A significant decline in the CNY could further exacerbate the AUD’s plight, ushering in lower growth rates for Australia and persisting inflationary challenges. In this scenario, broader market declines could reinforce a negative feedback loop for the Australian economy, resulting in the AUD remaining entrenched below 0.60 USD for an extended duration.
Conversely, the third scenario provides a glimpse of potential recovery. Should the new administration adopt an approach similar to that of Ronald Reagan in the 1980s—characterized by tax cuts, deregulation, and minimal trade disruptions—there could be a supportive environment for the AUD. Analysts at BofA suggest that such an economic climate could allow the AUD to rise to 0.70 USD. The resulting economic buoyancy, coupled with a stabilizing CNY, may foster a significant rally in U.S. equities, ultimately benefiting Australia’s export-driven economy.
The outlook for the AUD is intertwined with complex global interactions, particularly U.S. economic policy shifts. The sensitivity of the Australian dollar to international markets, commodity prices, and the performance of the CNY signifies that traders and investors must stay attuned to these dynamics. As we approach 2025, the AUD’s trajectory will remain uncertain, shaped by the outcomes of U.S. policies and the broader economic environment, raising questions about the currency’s resilience in an ever-evolving landscape.