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Australian Dollar Still Mired But Could Ride Fed’s Risk Wave Higher

Australian Dollar Still Mired But Could Ride Fed’s Risk Wave Higher

David Cottle, Analyst



Fundamental Australian Dollar Forecast: Bullish

  • The Australian Dollar has gained with others as the Fed’s dovishness hit the greenback
  • The RBA for its part is still arguably less dovish than the market
  • This week might well see AUD/USD gains hold

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 made gains last week, inspired by central bank commentary from the both sides of the AUD/USD pair.

The US Federal Reserve left its monetary settings alone but did nothing to disabuse futures-market participants betting on a July interest rate cut. This caused a surge in bearish Dollar plays across the traded-currency complex, with the Aussie benefitting despite what was at face value even more dovish commentary from its own central bank.

Speaking in Adelaide Reserve Bank of Australia Governor Philip Lowe said that expectations of another cut in the record low 1.25% Official Cash Rate were ‘no unreasonable.’ This is explicit talk indeed from a central banker. However, Lowe also pointed again to the limits of monetary policy’s effectiveness in a world were rates have been at historic lows for some years. In doing so he was perhaps, once again, less dovish than the Australian Dollar market overall. Of course, the RBA will attempt to fulfil its inflation mandate and, while pricing power remains weak, lower rates will remain an option. But, given Australia’s roaring consumer debt levels, the bar to reductions beyond a single further quarter point move may yet be higher than the market thinks.

The coming week offers very little in the way of first-tier Australian economic news. Two RBA speakers, including Mr. Lowe are on tap. If they stick to the current script and give the market little reason to price in more than a single near-term rate cut, the Australian Dollar market is likely to remain focused on the US Dollar’s fortunes.

To be clear, a quieter week need not portend any great turnaround in the overall bearish backdrop still very much in place for AUD/USD. But it might extend battered Aussie bulls’ time of respite until, as it certainly will, focus returns to the currency’s own abject lack of policy support.

It’s a cautiously bullish call this week, rooted entirely in global risk appetite.


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!

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.