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FOMC may bring AUD/USD Volatility

Fundamental Australian Dollar Forecast: Bullish

  • The US Federal Reserve is likely to dominate AUD/USD trade this week
  • It will give its December policy call on Wednesday
  • Any sign of a more relaxed policy view will continue to support the Aussie, despite that currency’s own utter lack of interest rate support

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

The Australian Dollar’s revival of fortunes against its US cousin goes on, underpinned as it has been since its November beginnings by two key factors.

The first is hope for a trade rapprochement between Washington and Beijing. China is the prime customer of Australia’s vast raw-material export machine, while the US is an indispensable partner for Canberra on security matters. So, Australia has much to gain from a trade thaw between the two global giants. More indeed than any other third country, arguably.

And no doubt trade headlines, if they come, will move the Aussie this week. But their timing is impossible to predict. Federal Reserve monetary policy meetings meanwhile are timed with scrupulous regularity. One is coming up early on Wednesday, Australian time.

That brings us to the second AUD/USD prop. Much of the pair’s recent vigor has been rooted in the thesis that US rates may not rise as much in 2019 as investors had previously thought. This seems reasonable. Economic uncertainties abound, from Brexit to rising US deficits and clear signs of economic slowdown around the world. Moreover, the Fed has already raised rates eight times from their financial crisis lows. A pause for reflection could be easily justified.

So the Australian Dollar market will likely be stuck like all others while it waits to see what the Fed has to say on Thursday.

It’s certainly worth pointing out that the Australian Dollar will lack interest rate support even if the US central bank does chart a more cautious monetary course into 2019. Aussie futures markets now see no increase to the country’s own record-low, 1.50% Official Cash Rate for at least eighteen months ahead.

Still, if the Fed delivers its expected December rate hike but then suggests it’s going to hold off for a while then AUD/USD will probably hold up and may make further gains.

It’s a bullish forecast this week.

AUD/USD has broken downward channel

Chart Source: IG.com

Resources Australian Dollar 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!