FUNDAMENTAL AUSTRALIAN DOLLAR FORECAST: BEARISH
- The Australian Dollar is heading into a calmer week for domestic data
- Still, it’s in retreat against the US currency
- And it’s very hard to see that changing
Find out what retail foreign exchange traders make of the Australian Dollar’s chances right now at the DailyFX Sentiment Page.
The Australian Dollar faces a lack of major, first-tier domestic economic data in the coming week and, given that last week’s full calendar saw AUD/USD appreciably lower, it might be reasonable to assume that a sparser calendar might bring some reprieve.
For, to be sure, last week was rough on the currency. RBA Governor Philip Lowe sounded once again like a man in absolutely no hurry to raise interest rates when he spoke in Melbourne. He praised the economy’s strong employment record and lauded rising business investment. However, he also lamented the paucity of wage settlements and longed aloud for wage gains of 3%. With inflation stuck at 1.9% corporate Australia seems unlikely to offer such largesse.
Official Australian employment data were mixed. Overall job creation missed forecasts in May and was dominated by part-time hiring gains, even as the unemployment rate fell.
The coming week won’t bring anything of comparable importance to the data table. Investors will get a look at the minutes of the last RBA policy meeting but, given that Lowe has already spoken since, these seem unlikely to add much to what’s already known –that the record low, 1.50% Official Cash Rate won’t be going anywhere soon.
And that means that the Aussie is likely to remain embattled even if the data flow is light. The contrast between the RBA’s attitude and that of the US Federal Reserve remains very stark. The Fed hiked rates last week and, as long as the data give it the leeway, seems set to do so again this year at least once and probably twice.
Given that it’s hard to get too bullish about the AUD/USD backdrop. Last week’s rate move took the Fed Funds target rate band wholly above the OCR for the first time since the financial crisis and the spread between the two seems all-too likely to widen further in the US Dollar’s favor.
So much for interest rate differentials, AUD/USD is also under a bit of technical pressure thanks to bulls’ failure to build on June 6’s peaks.
Of course, the US Dollar might retrace too, particularly if global trade war worries are stoked by more tariff threats from the White House.
But such things are unpredictable and, based on what we can know, it just has to be another bearish call this week.
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--- Written by David Cottle, DailyFX Research
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