Australian Dollar Forecast: Bullish
- The Australian Dollar saw sideways price action last week
- The underlying fundamentals are strong for the Australian economy
- China’s re-opening might be good news. Will it boost AUD/USD?
The Australian Dollar whipsawed in a 0.6856 – 0.7011 range last week when the Reserve Bank of Australia (RBA) hiked rates by 25 basis points to 3.35%. They also turned more hawkish in the ensuing Statement on Monetary Policy on the back of accelerating inflation.
After all the RBA action, AUD/USD is pretty much where it was last Monday morning.
In signs of further easing of tensions between Beijing and Canberra, Australian coal was delivered to China this week. While this is a positive step and will benefit some Australian miners, many exporters that were shunned by the policies of the Chinese Communist Party (CCP) have found new markets.
Last week saw the final instalment of monthly trade data to round out 2023 with a record-breaking trade surplus of close to AUD 140 billion for the year.
The economic boon to the domestic economy cannot be overstated and if China can smoothly re-open their economy from Covid-19 restrictions, this would seem likely to continue to stimulate domestic activity.
There might be an underlying message in the data. With the Australian economy is as good a shape as it has ever been, why is the Aussie Dollar languishing under 70 cents?
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Clearly, the strength of the US Dollar is playing out across all currency pairs and AUD/USD is no different in that regard.
The disparity in monetary policy between the Federal Reserve and the RBA may also be a contributing factor, despite the RBA re-accelerating toward a more hawkish stance last Tuesday.
This imbalance has the short end of the yield curve favouring US Dollars but further out, the influence of the discrepancy fades.
When dealing with ‘fiat’ currencies, perception of value and market phycology also have a role to play and perhaps this is also a determinant of the exchange rate.
In any case, this has led to the Australia economy experiencing what can only be described as an astronomical terms of trade. The longer the ‘Aussie battler’ hangs around these levels, the longer record profits will keep washing up on antipodean shores.
AUSTRALIAN TERMS OF TRADE
--- Written by Daniel McCarthy, Strategist for DailyFX.com
Please contact Daniel via @DanMcCathyFX on Twitter
