ING Cuts AUD/USD Target to 0.72 as RBA Hike Awaited

ING cut its year-end AUD/USD target to 0.72 from 0.73 on September 25, saying the Australian dollar looks undervalued after a rough week but that a Reserve Bank of Australia hike to 4.6% should prevent a retest of the roughly 0.69 June lows.

Context — Why the RBA decision matters for AUD/USD

ING expects the RBA to lift the cash rate 25 basis points to 4.6% today, arguing the economy continues to run hot. The bank points to a tight labour market, an upside surprise in second-quarter GDP and stronger inflation readings, even as parts of the housing market show signs of cooling.

The hike would take the cash rate to its highest level since 2011, according to prior coverage of the same decision. All four major Australian banks now forecast the move to 4.6% today.

Markets already price around 22 basis points for this week's RBA decision, so the rate change itself is largely in the price. That is why ING frames the currency reaction as a function of the statement and Governor Bullock's press conference, particularly any signal on whether November stays open.

The catalyst chain runs through energy. ING says the escalation in the US-Iran conflict has raised inflation risks, because Australia relies heavily on imported oil products such as diesel, petrol and jet fuel. Higher crude lifts domestic fuel costs, feeding input costs across transport, mining and agriculture.

That is the mechanism linking geopolitics to rate expectations. A diplomatic deal that pulls crude lower would ease the RBA's fuel pass-through worry, while renewed escalation would reinforce it. The global bond selloff and US Treasury yields above 5.2% remain a headwind for AUD/USD regardless of what the RBA does.

Data — The numbers behind the call

ING cites RBA estimates that a 10% rise in fuel prices could add more than 0.3 percentage point to headline inflation over one to two quarters. Indirect effects add a further 0.2 to 0.25 percentage point. ING expects crude to moderate but says domestic fuel prices are likely to stay sticky.

On core inflation, ING expects trimmed mean inflation to have held at 3.6% year on year in August, a third consecutive month at that level. That challenges the RBA's own forecast of 3.3% by year-end. | Metric | ING expectation | RBA forecast |

|---|---|---|

| Cash rate (today) | 4.6% | — |

| Trimmed mean inflation | 3.6% (August) | 3.3% (year-end) |

| AUD/USD year-end | 0.72 | — |

| AUD/USD prior target | 0.73 | — |

Labour data backs the hawkish case. Unemployment sits at 4.6%, full-time employment growth strengthened in July and August, three-month average job creation accelerated to around 34,000, and participation reached a record of around 67%. ING says that combination raises the risk that wage and underlying inflation pressures stay persistent.

On positioning, ING notes markets price roughly another 40 basis points of RBA tightening over the next nine months, against around 90 basis points for the Fed by July 2027. That leaves less room for a dovish repricing in Australia than in the US.

Analysis — Where the currency risk sits

ING says its short-term fair value model shows AUD/USD undervalued beyond a 1.5 standard deviation band, and calls the US dollar leg the big question. An October Fed hike could keep the greenback in demand and delay an AUD recovery; if the next Fed hike comes only in December, as ING expects, the Australian dollar could top the G10 scorecard in a US dollar correction.

The bank forecasts one hike each from the RBA and the Fed, and says the rate differential should turn more positive for AUD/USD. That is the core of the constructive view: the Australian leg gets tighter now, the US leg later.

The counter-argument is the bond market. A global bond selloff has hit risk sentiment and the Australian dollar together, and US Treasury yields above 5.2% keep the dollar's carry advantage intact. If yields keep rising, a hawkish RBA may not be enough to lift AUD/USD durably.

A second limitation is the fuel channel itself. ING assumes crude moderates, but if domestic fuel prices stay sticky, the inflation risk it flags for the RBA does not fade. That would argue for a longer tightening path, but also for weaker household spending — a mix that can cut either way for the currency.

Sector exposure follows the same thread. Imported diesel, petrol and jet fuel costs land on transport, mining and agriculture margins, while LNG and thermal coal exporters are the offsetting exposure if energy prices stay elevated. Positioning-wise, ING describes a market already short the Australian dollar into the decision, with the hike priced.

Outlook — What to watch next

Attention turns to the RBA's statement and Bullock's press conference for any signal on the path beyond today, especially whether November stays open. ING's base case of one hike each from the RBA and the Fed depends on that guidance holding.

On the levels ING names, a test below 0.70 is the near-term risk, while a retest of the roughly 0.69 June lows is avoidable with a hike. The 0.72 year-end target is the bank's revised objective, down from 0.73.

Crude oil is the variable that feeds back into the rate path. ING says it expects oil to moderate, but the inflation math runs through fuel prices, so Iran diplomacy headlines feed directly into Australian rate expectations. On the US side, the timing of the next Fed hike — October versus December — decides whether the dollar correction that ING needs for its AUD call arrives on schedule.

Frequently Asked Questions

What does ING's 0.72 AUD/USD target mean for retail investors?

It is a year-end forecast for the currency pair, cut from 0.73. ING frames the Australian dollar as undervalued beyond a 1.5 standard deviation band on its short-term fair value model, but warns a near-term test below 0.70 is possible. The target is a house view, not a guaranteed path, and it depends on the Fed hiking only once, in December.

Why does oil matter so much for the RBA right now?

Australia imports most of its diesel, petrol and jet fuel, so higher crude lifts domestic fuel costs and feeds input costs across transport, mining and agriculture. ING cites RBA estimates that a 10% fuel price rise could add more than 0.3 percentage point to headline inflation, with indirect effects adding 0.2 to 0.25 percentage point more.

Why did ING cut its AUD/USD target?

ING said the Australian dollar had a rough week, hit by weak risk sentiment and the global bond selloff, with US Treasury yields above 5.2% keeping the dollar in demand. It also flagged that an October Fed hike would delay any recovery. The cut to 0.72 from 0.73 reflects those headwinds, even as the bank keeps a constructive medium-term view.

Bottom Line

ING's 0.72 AUD/USD call hinges on a hawkish RBA hike that blocks a retest of the 0.69 June lows.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.