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Australian Dollar Looks Stuck, Albeit Close to New Highs

Australian Dollar Looks Stuck, Albeit Close to New Highs

David Cottle, Analyst

Fundamental Australian Dollar Forecast: Neutral

  • The Australian Dollar remains quite close to its new, 2017 highs
  • The Reserve Bank of Australia may not like that, but seems to accept that there’s little it can do
  • An as expected Fed policy meet won’t change the AUD/USD outlook

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

The coming week doesn’t look as though it’s going to be a game changer for the Australian Dollar, at least against its US counterpart.

Yes, of course, there is a Federal Reserve monetary policy meeting on Wednesday and trading action may be a little sparse in the runup. But if the US central bank does as it’s expected to - leave interest rates alone but reserve the right to raise them again this year if the economy and inflation hold up- then AUD/USD traders will be little wiser after the meeting than they were before.

That pair is sitting pretty close to new highs for the year, highs which have come despite a long chorus of Reserve Bank of Australia luminaries worrying aloud about the negative effects of a strong currency on the economy in their charge. Now it seems that the RBA has concluded that this trend isn’t worth fighting with anything other than rhetoric, that their currency remains attractive even with domestic interest rates at record lows and that there isn’t much to be done about it, negative effects and all.

Investors will hear from RBA Governor Philip Wheeler and Assistant Governor Luci Ellis this week. If they hammer currency strength anew then AUD/USD buyers may be deterred. But recent history suggests that such jawboning doesn’t hit AUD for very long. They might ramp up the volume of course, but that doesn’t seem especially likely.

Australian data is quite sparse this week and in any case unlikely to drive the memory of last week’s strong employment report from investors’ minds. All in all, it looks as though it just has to be a neutral call for the Aussie, so it is, with the proviso that no news comes from North Korea’s direction to sap the markets of risk appetite generally and appetite for the Aussie in particular.

--- 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.

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