Never miss a story from Ilya Spivak

Subscribe to receive daily updates on publications
Please enter valid First Name
Please fill out this field.
Please enter valid Last Name
Please fill out this field.
Please enter valid email
Please fill out this field.
Please select a country

I’d like to receive information from DailyFX and IG about trading opportunities and their products and services via email.

Please fill out this field.

Your Forecast Is Headed to Your Inbox

But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk.

Your demo is preloaded with £10,000 virtual funds, which you can use to trade over 10,000 live global markets.

We'll email you login details shortly.

Learn More about Your Demo

You are subscribed to Ilya Spivak

You can manage your subscriptions by following the link in the footer of each email you will receive

An error occurred submitting your form.
Please try again later.

Australian_Dollar_at_the_Mercy_of_Fed_QE_Taper_Speculation_body_Picture_1.png, Australian Dollar at the Mercy of Fed QE Taper Speculation

Australian Dollar at the Mercy of Fed QE Taper Speculation

Fundamental Forecast for Australian Dollar: Neutral

  • Australian Dollar at Risk as US News-Flow Threatens to Fuel Fed QE “Taper” Bets
  • Profit-Taking Amid Thin Holiday Liquidity Conditions May Produce Aussie Bounce
  • DailyFXSSI Sentiment Gauge, Technical Positioning Don’t Bode Well for AUD/USD

The Australian Dollar came under intense selling pressure last week as home-grown and overseas developments conspired to weigh on the currency in tandem. The move downward began with the unraveling of risk appetite amid fears that the Federal Reserve may begin to scale down its stimulus efforts sooner than expected after minutes from October’s FOMC meeting printed on the hawkish side of investors’ forecasts (as we expected). It was compounded by disappointing economic data out of China as HSBC’s China Manufacturing PMI gauge revealed that factory-sector activity slowed more than economists expected in November.

Reserve Bank of Australia Governor Glenn Stevens put the proverbial nail in the coffin, saying in a much-publicized speech that central bank was “open-minded” about FX market intervention. The RBA chief argued that the currency is above expect levels in the medium term and warned that although officials are still unconvinced about whether the benefits of intervention outweigh the costs, current inaction doesn’t mean the RBA will always remain on the sidelines.

Looking ahead, a quiet domestic calendar is likely to see external forces at the forefront. Fed QE “taper” speculation takes top billing, with a healthy helping of scheduled event risk led by October’s Durable Goods Orders figure and November’s Consumer Confidence report on tap. US economic news-flow has begun to firm anew relative to expectations (according to data compiled by Citigroup). This suggests economists continue to under-price the resilience of the recovery in the aftermath of October’s government shutdown, opening the door for upside surprises to fuel bets on a sooner-rather-than later move to cut back asset purchases. Needless to say, such a turn of events bodes ill for sentiment trends and the Aussie alike.

Also of note, liquidity is likely to turn scarce in the second half of the week as US financial markets shut down for the Thanksgiving holiday. While thin trading conditions can make for muted price, they can likewise amplify volatility in the event that unforeseen headline risk spooks investors. That may encourage traders to book profits on outstanding exposure rather than float positions into the holiday weekend. In the context of recent Aussie selling, the trades to be unwound are likely to be on the short side of the market, which may allow the currency to produce a corrective bounce. - IS