UBS raised its year-end price objective for the Australian dollar versus the U.S. dollar to 0.74, pointing to stronger fundamentals and continued market appetite for the currency as the principal drivers behind the move.
For the nearer term, UBS set an AUD/USD target of 0.72 for the end of the second quarter, a level described as modestly above prevailing spot rates. The firm noted that market positioning is skewed one-way, acknowledging imbalances in trader exposures.
UBS said it does not see a compelling reason to fade Australian dollar strength given the observed improvement in underlying fundamentals that has coincided with the market’s rising preference for the currency. To express this view, the bank indicated a preference for short positions in EUR/AUD.
In its updated EUR/AUD outlook, UBS forecasts the pair to decline to 1.61 by the end of the second quarter, a level close to the March low of 1.6128, and to reach 1.54 by year-end. The firm observed that achieving the year-end EUR/AUD target would entail a slower annualized rate of decline than the pair has recorded so far this year. UBS added that this path remains possible even if investor appetite for the Australian dollar softens from recently elevated levels.
UBS also revised its projections for AUD/NZD, setting a profile of 1.22 at the end of the second quarter and 1.20 by year-end. These levels are aligned with the bank’s recently adjusted purchasing power parity estimate for fair value. While UBS warned that crowded long positions in AUD/NZD increase the risk of a squeeze lower, it expects any downward move to be limited in the absence of a stronger fundamental argument supporting the New Zealand dollar.
This set of forecasts reflects UBS’s current views on relative currency strength without asserting new causal factors beyond those outlined by the firm. The bank’s positioning preferences and updated targets provide a framework for traders and market participants considering exposures to AUD versus USD, EUR, and NZD.