Fundamental Australian Dollar Forecast: Neutral
- The Australian Dollar is clearly well supported near its highs
- The generally stronger US Dollar tone has not so far made much difference
- This week offers no obvious traps, but no clear upward markets either
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The Australian Dollar remains confined to a quite narrow band against its US cousin and, on a fundamental view, there seems precious little chance of that band breaking anytime soon.
Investors have had ample time to digest the US Federal Reserve’s September monetary policy decision, Although it seems to have led to some general US Dollar strength, AUD/USD remains quite close to its highs for 2017 (that was the US$0.8117 hit on September 8). The US central bank’s base case remains that there’ll be four, quarter-point interest rate rises between now and the end of 2018- even if the market still sees rather fewer. The Australian currency retains a slim yield advantage over the greenback. Australian rates aren’t forecast to move until well into 2018 and, when they do, they are expected to rise from their current 1.50% record lows.
In essence, that pair remains where it has been for weeks now. It’s stuck between clear underlying appetite to own the Australian currency even at relatively elevated levels -we’re currently in a region ill frequented since way back in 2015 after all- and worries that Reserve Bank of Australia doesn’t want to see its currency get much stronger.
The coming week doesn’t offer anything at all in terms of first-tier Australian economic data and, although investors will hear from one or two RBA luminaries, Governor Philip Lowe is not on the sked. His last public appearance was in Perth on September 21.
All that probably means is that the “USD” side of AUD/USD will continue to drive. There are plenty of heavyweight US economic releases on the sked, including a second look at second-quarter Gross Domestic Product. We’ll also hear from Fed Chair Janet Yellen again. She’s down to speak on Tuesday. While the pair may very well move on any of the above, it’s tough to spot anything likely to break the current, well-entrenched trading pattern. So, yet another neutral call it has to be.
--- Written by David Cottle, DailyFX Research
Contact and follow David on Twitter: @DavidCottleFX
