Australian Dollar Faces Hostile Backdrop, May Well Struggle

Fundamental Australian Dollar Forecast: Bearish

  • The Australian Dollar wilted last week
  • Some weaker data and commentary from its own central bank did the damage
  • This week offers little scope for a trend change

What’s standing between you and being the trader you want to be? Take a look at the DailyFX deep dive into the Traits of Successful Traders.

Last week was not a banner period for Australian Dollar bulls.

Yes, the Reserve Bank of Australia left interest rates alone at their 1.50% record low, as had been universally expected. But its accompanying statement did not look like that of a central bank in any hurry to take any monetary-tightening action. It also included another spot of worrying aloud at the harmful effects of a too-strong currency.

Then came some baleful economic data in the form of a surprising slide in August retail sales. As far as currency trade went this more than eclipsed some much perkier trade numbers released at the same time. Finally, there was RBA board member Ian Harper. He told The Wall Street Journal that further interest-rate cuts could not be ruled out should consumption levels show signs of fading out.

Now of course you might think that Mr. Harper was being a little tricky here. No central banker ever rules out policy moves unless it must and one piece of weak data need not presage consumption Armageddon. Moreover, other RBA officials including the governor have suggested that current market pricing looks broadly correct. It predicts that the next move will in fact be a rise, if not until well into 2018.

However, taken with all of the above, and against a backdrop in which markets still think US monetary policy is getting tighter, then the Australian Dollar remains under a bit of pressure. And there’s little in terms of scheduled economic news this week which seems likely to shift the dial on this decisively in either direction.

Australian business and consumer confidence surveys are coming up, as are US retail sales and the minutes of the last Federal Reserve monetary conclave. However, these all seem likely to offer AUD/USD no more than momentary respite from a backdrop which is not conducive to the bulls.

So it’s a bearish call again this week, even if there’s no obvious reason for the current downward trend to accelerate markedly. It might also be worth keeping a weather eye out for RBA commentary. It seems that that does the Australian Dollar very little good right now.

Australian Dollar Faces Hostile Backdrop, May Well Struggle

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter:@DavidCottleFX