Australian Dollar Lifted By Risk Appetite Shift But Still Vulnerable
Fundamental Australian Dollar Forecast: Neutral
- AUD/USD made gains on trade hopes, calm in Hong Kong and relief at Australian growth
- However, it still lacks interest rate support of its own
- The coming week offers few domestic clues, which will probably leave global risk appetite in charge
The Australian Dollar enjoyed a rare combination of bullish news last week, but its gains underlie the lack of predictability inherent in a market focused on overall risk appetite.
The picture outside Australia brightened considerably with encouraging noises on trade emanating from both China and the United States. It looks as though the two sides are at least committed to remaining in contact. High-level meetings are planned in Washington at the start of October.
Beijing also blinked over Hong Kong, with the controversial extradition bill which underlay last month’s protests now withdrawn.
Australian Growth: Not Great, Not Awful
Domestically, growth came in as economists predicted for the second quarter. At an annualized rate of 1.4% on the year, driven largely by government spending and exports, expansion was hardly stunning. However, it was at least clearly evident and laid to rest last-minute suspicions (stoked by no less a figure than Australian Prime Minister Scott Morrison), that a really soft number was coming.
The Reserve Bank of Australia left interest rates alone, but said nothing to dispel market belief that the record-low 1% Official Cash Rate will be with us for a while yet and may well head lower. Futures markets still think it will be 0.5% by May next year.
The coming week will bring no such major domestic events (the RBA calendar is entirely bare). Aussie-watchers will get a look at business and consumer confidence levels, but the fate of AUD/USD will probably be driven by trade headlines and global sentiment.
The pair has crossed above its medium-term downtrend line on last week’s burst of optimism, but don’t get carried away. It remains well within the entrenched channel lower in place since the end of 2018.
If optimism holds up, so will the Australian Dollar this week, but it’s very difficult to say that it will. But the currency still completely lacks monetary policy support of its own, something which can come back to haunt it at any time.
It’s a neutral call this week.
Australian Dollar Resources for Traders
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--- Written by David Cottle, DailyFX Research
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.