AUD tipped to appreciate in 2023GBP/AUD forecast to breach 2022 lowsAs Aus commodity strength shinesBut near-term could see further AUD weakness

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The Pound to Australian Dollar exchange rate (GBP/AUD) is forecast to fall back to levels last seen in 2013, according to new forecasts released by Rabobank.

The latest research from the global lender and investment bank shows a constructive profile for the Aussie Dollar which remains well poised in an emerging global economic order that favours commodity exporters.

However, ahead of a 2023 trend of appreciation against the Dollar, Pound and other major currencies, Rabobank sees the potential for an extension of the Aussie's recent weakness.

"There are signs that the Australian economy is faltering under the weight of higher prices and increased interest rates," says Jane Foley, Senior Currency Strategist at Rabobank in London.

She cites Australian retail sales data for October which showed a drop for the first time this year.

Rabobank finds Australia's high levels of mortgage debt and a greater sensitivity to short-term interest rates mean that the pass-through from the RBA's rate hikes this year will have been relatively swift.

"This has likely contributed to the RBA's decisions to step back to 25bp increments in its policy tightening ahead of many other major central banks," says Foley.

The Australian Dollar has underperformed its major peers over recent weeks as investors anticipate a slowdown in the pace the Reserve Bank of Australia (RBA) raises interest rates.

The central bank delivered another 25 basis point hike on December 06 and said it would likely raise interest rates again, although it said upcoming decisions were entirely data-dependent.

Markets and analysts alike see a further 50 basis points of hikes, at most, coming from the RBA, meaning it will likely be one of the first to exit the monetary tightening cycle.

This could deprive the currency of support via the interest rate channel over the coming months, according to some analysts.

"Going forward, softer than expected CPI inflation for October and comments from RBA Governor Lowe that Australia may be better positioned than its peer to achieve a soft landing suggests that the central bank could be close to reaching peak interest rates," says Foley.

However, she believes the shift in gear at the RBA might not necessarily be an enduring negative for the currency.

"The step back in hawkishness from the RBA would normally translate to a currency negative factor, but expectations for a soft landing suggest that Australian fundamentals remain healthier than many of its peers," says Foley.

In particular, Australia's robust and sizeable commodity export base will however be a source of support for the currency over the coming months.

RBA Decision is "Australian Dollar" Supportive Near-term: GBP/AUD Pulls Back from Resistance

Of interest to Rabobank's analysts is the new Australia-India economic and trade agreement which is due to come into effect at the end of the year and will eliminate tariffs on more than 90% of Australian goods exported to India by value.

The deal should underscore Australia's positive trade dynamics that saw total exports record a better-than-expected 7% m/m increase in September which was driven by higher prices for iron ore, metals and energy.

China is meanwhile easing Covid 19 restrictions as it aligns with the rest of the world and puts the pandemic behind it.

This opens the door to a more durable economic rebound in Australia's most important customer.

"While there is risk that another bout of USD strength will knock AUD/USD lower in the coming months, we see Australia as better positioned than many of its G10 peers and expect AUD/USD to trend moderately higher medium-term," says Foley.

Rabobank forecasts the AUD/USD to pull back in the near term but appreciate steadily over the duration of 2023.

Their latest point forecasts are for 0.65, 0.66 and 0.69 in three months, six months and 12 months.

Their GBP/USD forecasts for the same period are set at 1.11, 1.07 and 1.06.

This gives a GBP/AUD forecast of 1.7070, 1.6212 and 1.5362, implying the Pound will fall back to levels last seen in 2013.

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