Australian Dollar Scuppered as US Dollar Takes the Throne as King of Currency

AUSTRALIAN DOLLAR, AUD/USD, US DOLLAR, GBP/USD, RBA, BOE, FED -Talking Points

• The Australian Dollar is battling against a tide of higher rates elsewhere
• The US Dollar is fundamentally supported while the Sterling is undermined
• If the RBA turns less hawkish comparatively, will AUD/USD make new lows?

The Australian Dollar remains hostage to global forces as the US Dollar continues to surge on the back of a Federal Reserve that is determined to get inflation under control.

Overnight, St. Louis Fed President James Bullard reiterated the determination of the bank to stare down price pressures when he said, “There’s a lot of tightening in the pipeline.”

His hawkish comments were supported by the other Fed board members Evans and Kashkari. All this rhetoric has lifted Treasury yields to levels not seen in decades in some parts of the curve.

This has seen the US Dollar shoot up across the board and no more so than against the British Pound after the UK government announced some unexpected fiscal stimulus measures last Friday.

Their loosening of policy is going against the tightening of the Bank of England’s monetary policy and against the stance of other developed market governments, that are working to pay down pandemic-induced debt.

Back in the land down-under, the RBA has hinted toward a deceleration in their rate hike program. Governor Philip Lowe has recently said that the board will be considering a 25 or 50 basis point lift at their meeting this Tuesday.

This reflects a less serious inflation problem, but it has also undermined the currency with a lower yield on offer.

The next CPI gauge will not be known until the 26th of October and makes this upcoming meeting at Martin Place a somewhat blind estimate of what is happening to price pressures within the economy

The market is also torn between a 25 or 50 basis rate hike next week, with the futures market pricing in a 39 basis point change.

Since this time last week, the Aussie dollar has risen against Sterling and the Kiwi but has lost ground against the Yen, Euro, Loonie and of course the ‘big dollar’.

AUD AGAINST CAD, EUR, GBP, JPY, NZD AND USD

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--- Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter