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Australian Dollar Faces Global Risks: US-China Trade, UK Vote, Fed

Australian Dollar Faces Global Risks: US-China Trade, UK Vote, Fed

David Cottle, Analyst
AUDUSD 2-Hour Chart

Fundamental Australian Dollar Forecast: Neutral

  • The Australian Dollar has made notable gains after local interest rate decisions and growth data
  • Investors remain convinced that more stimulus will be needed, however
  • This prognosis will weigh on the currency, but market minds may be elsewhere this week

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 lacks the sort of major domestic economic talking points which characterized the past busy week, which will probably leave global risk appetite with a bigger say over where it goes.

The Aussie jumped notably on December 2 when the Reserve Bank of Australia left the key Official Cash Rate on hold at its 0.75% record low. In some ways this was an odd reaction to a result well priced-in to markets before the fact. Still, judging by its commentary the RBA appears content for now to gauge the effects of past rate cuts and, perhaps, hope that holiday-period spending provides some stimulus of its own.

AUD/USD’s gains snapped the downtrend which had previously been in place since early November.

Daily AUD/USD Price Chart

Daily AUDUSD Price Chart

The currency was taken still higher when official third-quarter Gross Domestic Product data came in more or less as expected, a relief in the end as investors had been a little nervous. Still, while growth may be holding up, just, the markets aren’t entirely convinced that this happy state of affairs will endure.

Australian ten-year bond yields saw some big falls in the aftermath of the GDP data, suggesting that market, at least, thinks more monetary loosening will be needed. Indeed, a small but growing list of major banks is prepared to forecast that this will need to go beyond lower interest rates and into the outer reaches of Quantitative Easing (QE), perhaps by late next year.

In his latest speech on the subject RBA Governor Philip Lowe for his part doubted that either QE or negative interest rates seen elsewhere would be needed, although of course he reserves all right of action in pursuit of his mandate. Markets will therefore look eagerly to his next, due in Sydney on Tuesday, for further clues.

Also coming up are snapshots of business and consumer confidence, along with Chinese trade and inflation data, both of which can move the Aussie.

However, in the absence of first-tier domestic data drivers the currency is all too likely to be buffeted by international risk events. The twists of the US-China trade story will probably be chief among these, as will the Federal Reserve’s last policy decision of the year. That’s coming up on Thursday. The Fed is expected to leave rates alone and maintain its data-watching brief. The United Kingdom’s general election will also loom large at week’s end.

The Australian Dollar has been quite sensitive to Brexit news and, with this election effectively yet another public vote on how to move that story on, the currency probably stands to gain if the incumbent Conservative government is returned with a majority.

However, given the Aussie’s lack of monetary policy support, and the unpredictability of trade-deal headlines, it’s still a neutral call this week.

Australian Dollar 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.