News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
Wall Street
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • A currency carry trade involves borrowing a low-yielding currency in order to buy a higher yielding currency in an attempt to profit from the interest rate differential. Find out if the carry trade suits your trading style here: https://t.co/7t4BzmLg8w https://t.co/v6RGICQvge
  • Get your snapshot update of the of top level exchanges and key index performance from around the globe here: https://t.co/d8Re5anlG5 https://t.co/rws9LHJV3E
  • RT @FxWestwater: Japanese Yen Forecast: JPY Crosses Eye BoJ, CPI as Haven Flows Bolster Yen Strength Link: https://www.dailyfx.com/forex/fundamental/forecast/weekly/jpy/2021/09/18/Japanese-Yen-Forecast-JPY-Crosses-Eye-BoJ-CPI-as-Haven-Flows-Bolster-Yen-Strength.html?CHID=9&QPID=917708&utm_source=Twitter&utm_medium=Westwater&utm_campaign=twr https:/…
  • Traders utilize varying time frames to speculate in the forex market. The two most common are long- and short-term-time frames which transmits through to trend and trigger charts. Learn more about time-frame analysis here: https://t.co/9S5tXIs3SX https://t.co/FVisZuTP6M
  • Stocks appear to be in a corrective phase but could get put to the test; levels and lines to watch in the days ahead. Get your weekly equities forecast from @PaulRobinsonFX here: https://t.co/H1BaTlIHjY https://t.co/zP3mjfslSD
  • Currency exchange rates are impacted by several factors. Are different world leaders a contributing factor? Find out here: https://t.co/4jsORznRTE https://t.co/Of1thU4zXw
  • Further your forex knowledge and gain insights from our expert analysts on AUD with our free guide, available today: https://t.co/p2FhEwym1E https://t.co/MjiYB85TSF
  • Many people are attracted to forex trading due to the amount of leverage that brokers provide. Leverage allows traders to gain more exposure in financial markets than what they are required to pay for. Learn about FX leverage here: https://t.co/BdgFmkRxVw https://t.co/fIO9TP7D62
  • Trading Forex is not a shortcut to instant wealth, excessive leverage can magnify losses, and sentiment is a powerful indicator. Learn about these principles in depth here: https://t.co/lZFM8youtX https://t.co/Xja8DHUqlH
  • Risk management is one of the most important aspects of successful trading, but is often overlooked. What are some basic principles or risk management? Find out from @PaulRobinsonFX here: https://t.co/IsnpfJhp91 https://t.co/9po5Lg4vnR
AUD Market May Find Bar To Deeper Rate Cuts Very High Indeed

AUD Market May Find Bar To Deeper Rate Cuts Very High Indeed

David Cottle, Analyst

Australian Dollar, Official Cash Rate, Talking Points:

  • Australian interest rates were cut to a new record low last week
  • Futures markets think they are going lower yet
  • They may, but deep cuts will pose big problems without offering obvious solutions

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

The Australian Dollar rose last week after the first domestic interest rate cut since late 2016 took the Official Cash Rate down to a new record low of 1.25%.

This is counterintuitive. After all lower rates ought to count heavily against a currency. However, in the Aussie’s case the market had become extremely ‘dovish’ on interest rate policy before the fact. That means investors were certain that the delivered cut was coming. They were and remain pretty sure that rates will yet go lower still. This certainty had reached the point where the only way in which the Reserve Bank could have met it would have been by promising to cut again in July. It was never going to do this so, sure enough, it was read as ‘less dovish than the market’ and up went the currency.

Australian Dollar Vs Dollar, Daily Chart

However, Australian rate futures still price in the chance of another cut next month at more than 50%, with yet another reduction penciled in before May next year. That would take the OCR down to 0.75%.

Now on one important level this is not controversial. The RBA is mandated to target annualized consumer price inflation between two and three percent. The last read was 1.3%. Indeed, inflation has made only two, brief quarterly forays above 2% since mid-2014. Looked entirely through the prism of its mandate the case that the RBA should in fact have acted is quite easy to make. Perhaps indeed it should have acted sooner.

Don’t Forget All That Debt

But there’s at least one huge problem here for the central bank. In a word, it’s ‘debt.’ Australian private individuals are already among the developed world’s keenest borrowers. According to data from the Institute of International Finance Australian household debt equaled 127% of Gross Domestic Product at the end of last year, and 189% of disposable income. Both measures are close to record peaks and put Australia either at or very close to the top compared to similar economies.

The RBA will be keenly aware that more than two years of record low interest rates has of course stoked borrowing while not notably stimulating inflation. With too many Australians already horribly in hock, the dangers of encouraging yet more borrowing are clear enough. For its part central bank is betting much on the labor market. That has been a rare, consistent strong point in an Australian economy which remains an astonishing job-creation machine. It’s been a non-inflationary machine too, so far, but the RBA still seems to believe that eventually wage pressures will be seen in the pricing figures.

So, this week’s official labor market statistics will probably be even more notable than usual for Aussie watchers. The jobless rate is expected to have ticked lower to 5.1% in April. While it remains close to that psychologically comforting 5% level, the RBA will probably stick to its line that eventually labor will ride to inflation’s aid. The market may well get the one more rate cut it’s expecting, but action beyond that seems far less certain.

The combination of high private debt and strong job creation might make the bar to deeper cuts much higher than the market now thinks.

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.

DISCLOSURES