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Fundamental Australian Dollar Forecast: Neutral

Australian Dollar Talking Points:

  • Strong Australian economic data steadied AUD/USD last week
  • There’s much less of it in coming sessions, and the pair still looks like a strategic short
  • It might not fall far in the immediate term however.

Find out what retail foreign exchange traders make of the Australian Dollar’s prospects right now, in real time, at the DailyFX Sentiment Page

Blockbuster economic data bought the Australian Dollar some respite last week, but it might not be wise to hope for much more of this in coming sessions even if the long fall does not resume immediately.

For sure, official Gross Domestic Product numbers for the second quarter looked good. Their annualized 3.4% rise was the sharpest since September 2012 and well ahead of forecasts. This pleasant surprise for battered, rare-breed Aussie bulls, was followed shortly by yet another. August’s employment data showed job creation still running hot, with full-time roles expanding nicely.

AUD/USD even chalked up the rare feat of five straight sessions of gains.

However, the difficulties which have seen the Aussie under pressure all year endure. Yes, the domestic economy performing quite well. But inflation remains low, consumer debt is still very high and the interest-rate differential in favor of the US Dollar yawns, and will yawn still wider as the Federal Reserve continues to hike.

Moreover trade tensions between the US and China cannot fail to hit Australia, a country whose economic, security and political fortunes are perhaps uniquely tied to those of the two global giants. Even were that not so dramatically the case, trade tensions tend to it growth-linked currencies such as the Australian Dollar disproportionately hard.

For all the current economic cheer, no change is priced into Australian interest rate futures for all of next year. Recall that the Official Cash Rate remains stuck at the 1.50% record low which has already endured unchanged since August, 2016.

So, the Australian Dollar still has trouble enough, and that is likely to remain the case for as long as there is simply no evidence that domestic inflation is rising, or that trade is calming as a global worry.

Still, while AUD/USD remains a strategic short, it may not fall too much further in the coming week. So it’s a cautiously neutral call from me.

Australian Dollar Remains Pressured But May Get Some More Respite

Resources for Traders

Whether you’re new to trading or an old hand DailyFX has plenty of resources to help you. There’s our trading sentiment indicator which shows you live how IG clients are positioned right now. We also hold educational and analytical webinars and offer trading guides, with one specifically aimed at those new to foreign exchange markets. There’s also a Bitcoin guide. Be sure to make the most of them all. They were written by our seasoned trading experts and they’re all free.

--- Written by David Cottle, DailyFX Research

Follow David on Twitter@DavidCottleFX or use the Comments section below to get in touch!

Other Fundamental Forecast:

New Zealand Dollar Forecast - NZD Rise to Gain if GDP Sinks RBNZ Rate Cut Bets, Trade War a Risk

Oil Forecast – Brent Up 10% Since August Low, Stubborn Supply Concerns Persist

British Pound Forecast – Sterling Continues to Benefit From a Lack of Bad News

Gold Forecast - Gold Price Hinges on US-China Trade War Developments