Forecast for AUD (Australian Dollar) in 2022; AUD performance against main currencies
This article looks at the trend in the Australian dollar forecast in 2022.
Bank forecasts for the Australian dollar in 2022
- In early 2021, the Australian Dollar rose to an almost 3 year high versus the US Dollar, analysts are not expecting a repeat performance in 2022. Although they are cautiously positive on the AUD outlook.
- HSBC sees the Australian Dollar, also known as the Aussie, rising in 2022 as the Australian economy grows stronger.
- ING expects the Australian jobs market to improve in 2022, which would support the Aussie. However, uncertainty regarding the Chinese economy could limit gains in the Aussie given that China is Australia’s largest trading partner.
- Australian Bank Westpac, expects the Australian economy to grow in 2022, which would support the Aussie. The expect economic growth of 6.4% in 2022.
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What’s the impact of a weak AUD Dollar (AUD)?
- Australia is an export-orientated economy, so a weaker Australian Dollar can boost the economy. This is because Australian products and services become more competitive in the global market.
- Overseas buyers of Australian goods and services also benefit from the cheaper prices.
What’s the impact of a strong Australian dollar (AUD)?
- A high Aussie Dollar can make exports more expensive. This could drive overseas buyers to buy from other countries with cheaper products and services. Iron ore and coal are Australia’s top exports, high exchange rates would hurt these industries and the Australian economy.
- Australian imports would benefit from a stronger Australian Dollar because imported goods would be cheaper. This could boost the Australian retail sector
What are the key influences on the AUD?
- The Australian dollar is seen as a riskier currency, it is closely tied to commodity prices which can have big swings.
- When the global economic or geo-polititcal outlook improves, AUD often rises. When the global economic or geo-political outlook worsens the aussie often falls.
- The pandemic has been a key influence for the Australian Dollar. Improving vaccine rates could help the currency rise. Meanwhile the discovery of new, more severe or more contagious strains of COVID could hurt demand for the Australian Dollar
1. The Economy
- Australia’s economy is influenced by commodities. Australia exports commodities, particularly metals to China.
- When economic growth quickens in China, commodity prices often rise and, the value of the Australian dollar often rises too.
- Similarly, slower economic growth in China can hurt the value of the AUD.
- The Australian jobs market is also a key factor when considering the health of the Australian economy. Falling unemployment can boost the value of the Australian Dollar.
- Political relations with China are important for the Australian dollar because China is Australia’s main trading partner.
- In 2021 there were times when Chinese -Australian relations deteriorated, which pulled the Australian Dollar lower. Should relations worsen across 2022, the Australian dollar could fall.
- Regarding domestic policies, should the government implement measures which are considered supportive of economic growth, AUD could rise.
- Should tax hikes be part of the government’s plan this year, AUD could come under pressure.
3. Other Currencies
- The value of the Australian dollar can depend on the value of other currencies.
- The Australian Dollar and Japanese yen have an interesting relationship. Investors often look at the yen as a safe haven, the opposite to the riskier aussie. When the Japanese yen rises the Australian dollar often falls and vice versa.
- The Australian Dollar and the New Zealand Dollar are both called commodity currencies. This is because they are both influenced strongly by the price of commodities, the main exports for Australia and New Zealand.
AUD/USD performance in 2022
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US Dollar against other currencies
- Both the Australian and the UK economy are expected to continue growing in 2022. The UK economy is forecast to grow 4.7% and the Australian economy is expected to grow 4.1% in 2022.
- Lingering Brexit issues could hurt the pound. Meanwhile China poses a risk to Australia as growth in Australia's largest trading partner slows.
- NAB expects the Australian Dollar to rise slightly against the Pound, reaching 0.56 by the end of 2022.
- The Australian Dollar weakened against the Indian Rupee is 2021 as both economies grew after the pandemic.
- Australia could see interest rates lifted before India which would support the Australian Dollar.
- However, the Australian Dollar could be held back by slowing growth in China.
- If investors are positive about the state of the global economy in 2022 then the Australian Dollar will rise against the Japanese yen, which is considered a safe haven currency.
- Should uncertainty from new coronavirus strains rise then the Australian Dollar could fall versus the Japanese Yen.
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