Australian dollar forecast: slaughter
- The Australian dollar continues to move in a range of 2 cents
- RBA rate hike is not enough to support the Australian dollar but trade numbers can’t be ignored
- China and Taiwan top the newsbut a hawkish Fed could lead AUD/USD
The Reserve Bank of Australia’s rate decision came with the widely expected rise of 50 basis points to 1.85% sending the Australian dollar south.
The move down was doubled by a number of Fed speakers later that day, reiterating the central bank’s hawkish stance, boosting the US dollar.
Then the AUD/USD currency pair recovered at the end of last week, maintaining a comfortable position within the 2-week range of 0.6860 – 0.7050.
This recovery was aided by another stunning trade surplus of A$17.67 billion for the month of June. This beat expectations of A$14 billion and May’s surplus of A$15 billion. The charts below from the Reserve Bank of Australia tell the story of Australia’s commodity boom.
The 3.5% unemployment rate is as low as it has been for generations. Q1 GDP was 3.3% on an annual basis, and Q2 GDP will be released in early September.
Inflation aside, the Australian economy has rarely been as good as it is now. However, AUD/USD continues to weaken, and this highlights the impact of the external environment on the currency.
US House Speaker Nancy Pelosi’s visit to Taiwan provided numerous headlines for the media to sell copies of.
The person with an extravagant affection for all things communist is Hu Xijin. Feed it on Twitter It reads like a text from Saturday Night Live without any lines, but provides insight into the propaganda that mainland Chinese citizens experience on a daily basis.
The Communist Party needed to be distracted from domestic issues and what better fireworks than a few ballistic missiles to stoke nationalistic fervor.
One of his elements is Hu Xinjin, fanning the flames of xenophobia with gems like, “In the event of a naval conflict between the United States and China, the formation of the American carrier will be eliminated.”
Of course, the Western media is also known to tell a story more than there is.. The Communist Party enjoyed media stories not related to a real estate sector spiraling toward an unknown outcome.
In any case, markets are mostly ignoring the situation in Taiwan at the moment. The war in Ukraine continues to affect.
The focus over the next week will be on the Fed speakers and the market’s interpretation of this speech.
All the Fed speakers since the FOMC meeting so far have made it very clear that more rate hikes are coming. The US dollar and the price market reflect this perspective.
The high-yield stock and bond markets are priced in the opposite direction. As one expert mocked the stock market’s reaction to the Federal Open Market Committee’s interest rate decision last week, it is “a pigeon at first sight.”
The Reserve Bank of Australia released its monetary policy statement on Friday, but there were no surprises. They expect inflation to peak at 7.75% later this year.
Without a CPI reading until late October, the central bank may put the signal back on the shelf. Jumbo hikes seem off the table at the moment and a 25bp hike appears to be a safe option for the September and October meetings.
Looking at the AUD/USD, it appears that the US dollar side of the equation is likely to drive the price action. If the “big dollar” resumes its upward trend, it could lead to a drop in the Australian dollar.
Can read RBA’s SMP over here.
— By Daniel McCarthy, Strategist for DailyFX.com
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