AUD/USD forecasts upgradedGBP/AUD forecast to trend lowerRBA policy shift to be key driver

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The U.S. Dollar is forecast by HSBC to continue a run of outperformance in 2022, but the Australian Dollar also looks set to appreciate say analysts at the UK-based global lender.

"We believe the USD should be in a stronger position in the coming months, there might be other currencies that can hold their own," says Paul Mackel, Global Head of FX Research at HSBC.

HSBC tells investors they should look out for those currencies offering both positive carry and the added benefit that their central banks could normalise monetary policy faster and by a larger magnitude, with less already priced in to the front of the rate curve versus the terminal rate.

"When looking from this angle, the USD stands out... but so does the AUD," says Mackel in HSBC's 2022 currency outlook publication.

Above: "Yield levels and potential to speed up rate hikes should support currency performance" - HSBC.

GBP/AUD reference rates at publication:

Spot: 1.8598High street bank rates (indicative band): 1.7947-1.8077Payment specialist rates (indicative band): 1.8430-1.8500Find out about specialist rates, hereSet up an exchange rate alert, hereBook your ideal rate, hereBacking for the Australian Dollar by one of the world's largest corporate and investment banks comes at the end of what has been a year of underperformance for the antipodean currency.

The Australian Dollar is near the bottom of the G10 performance league, with gains only coming against the Yen and Swedish Krona.

The Pound to Australian Dollar has gained 4.5% in value while the Aussie has lost a more substantial 7.30% against the U.S. Dollar.

Central bank policy will continue to matter for currencies in 2022, with those currencies belonging to central banks ramping up to an interest rate hiking cycle likely to benefit.

The RBA maintained a 'dovish' guidance for much of 2021 but ultimately had to abandon an ultra-loose policy given the relative resilience of the Australian economy.

"Based on market pricing there is room for further hawkish surprises which would be supportive for the AUD, relatively speaking," says Mackel.

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HSBC meanwhile sees little reason to favour the "rate hike laggards" which includes the Euro, Krona, Franc and Yen.

While supportive yields paid on Australian financial products - courtesy of this RBA policy shift - will be a key source of support for the currency in 2022, other factors will offer support too.

HSBC says the marked deceleration in global activity that has hampered the currency in the second half of 2021 should be less of an issue in 2022 as growth stabilises.

They also see China’s economy stabilising in the first quarter of 2022 on the back of policy stimulus. (NOTE: the 2022 forecasts came out ahead of the emergence of Omicron as a major consideration.)

HSBC upgrade their forecast profile for the Australian Dollar against the U.S. Dollar and set a point forecast of 0.74 for end-Q1 2022 that they maintain through to year-end.

The previous forecast for year was set at 0.71 for the end of the first quarter and 0.70 for the subsequent three quarters.

Their point forecast for the GBP/USD is meanwhile at 1.33 for the end of the first quarter 2022, 1.32 for the end of the second quarter, 1.31 for the end of the third quarter and 1.30 for year-end.

This represents a downgrade from the 1.34 they previously held for the entirety of the year.

Using the above, we calculate a cross-forecast implied by the above for the GBP/AUD exchange rate of 1.80, 1.78, 1.77 and 1.75.