Fundamental Forecast for the Australian Dollar:Â Bearish
- The Aussie Dollar has been unable to rise far despite a backdrop which should support it
- For AUD/USD at least, rate differentials still seem to rule
- That could make this a tricky week for bulls as Janet Yellen goes to Capitol Hill
The Australian Dollar has just endured surprisingly torpid week.
It was full of potential market movers. We’ve had an interest rate decision from the Reserve Bank of Australia, and its quarterly Statement on Monetary Policy. Then came news that China’s trade surged in January with both exports and imports exploding beyond anything that the forecasters expected.
The last bit of news certainly lifted the Aussie but, as you can see from the chart below, the week’s range was rather narrow nonetheless.
Going nowhere: AUD/USD
Chart Compiled Using TradingView
And the ostensibly Aussie-supportive news didn’t end there. Asian stocks hit 18-month highs, thanks to strong performances from China, Hong Kong and Taiwan. This in turn was reportedly on hopes that China’s economy is now not merely stabilizing but strengthening, a point those trade data seem to have underlined in spades.
RBA Governor Phillip Lowe even said on February 9 that it was “hard to argue†that the Aussie was undervalued, given the central bank’s growth prognosis.
So why isn’t the currency higher? Well, at least against the US Dollar, it’s plausible to argue that nothing which happened last week has fundamentally changed the relative interest-rate outlook for the two countries. Right now, markets believe that Australian rates won’t rise for some time – even if they go no lower – while US rates are going up this year, possibly sharply. The Federal Reserve has yet to adjust the central case it put in December which envisaged three quarter-percentage-point increases this year.
