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Australian Dollar Still Looks Pinioned By Watchful RBA

Australian Dollar Still Looks Pinioned By Watchful RBA

David Cottle, Analyst


Fundamental Australian Dollar Forecast: Neutral

  • The Australian Dollar hasn’t moved very far in the past two weeks
  • Is this the time when things start moving for it at last?
  • Well, maybe but, with the RBA glowering suspiciously over all, probably not

Just getting started in the AUD/USD trading world? Our beginners’ guide is here to help

I’ve made neutralcalls on the Australian Dollar for the past two weeks straight and I’m quite pleased I did.

For the currency has been unusually listless against its US cousin and its torpor has also been evident against other things too, notably the Japanese Yen. None of which is to say that things look especially bad for the Aussie. Even if it is refusing to budge much it is usually doing so quite close to its highs for the year.

Could this be the week when things start to move for the currency? It’s surely possible, but perhaps not very likely. At the time of writing (01:30 GMT on Friday), we don’t know exactly what will be said at the Jackson Hole central banking get-together and we don’t know what the currency effects will be.

However, it is within reason to assume that the expected optimism from Federal Reserve Chair Janet Yellen, and the expected reassurance that rates could yet rise again this year, might be bad news for the Aussie. After all, if the Federal funds target rate goes up by just one more quarter-percentage-point then the Australian Dollar’s yield advantage over the greenback will finally be toast. Of course, that difference would be largely psychological in impact, but psychology is important in foreign exchange.

We probably shouldn’t overplay this though. Markets have already had ample time to consider Aussie yield erosion. Jackson Hole aside there are a few data points coming up next week which might move the currency. China’s Purchasing Managers Indexes could do the trick, although when it comes to China the Aussie has been quicker to slide on weak numbers than to rise on strong ones in the last few months. Closer to home, Australia’s building and manufacturing sectors will also see data releases. Strength here could keep the admittedly quite distant prospect of higher Australian interest rates alive, and support the currency.

Ultimately though, we come back to where we have been these past two weeks and that is effectively at the doorstep of the Reserve Bank of Australia. The RBA was quiet last week, but before that had been telling all that it did not want to see excessive Australian Dollar strength. The suspicion that the RBA is watching the market very carefully is keeping a lid on the Aussie. I think it will continue to do so this week, which is why I am neutral yet again.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter: @DavidCottleFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.