The Australian dollar lost -5.14% against its US counterpart last week. The initial selloff began as RBA Governor Glenn Stevens changed gears to signal the bank’s bias is now towards cutting interest rates. The bearish push gained momentum as the greenback staged an impressive rally against the G10 and nearly every other currency. On balance, AUDUSD price action is likely to follow the majors and continue being driven by US dollar sentiment. A lucrative yield gap was the last source of the strength for the antipodean currency, and the new dovish tone coming from the RBA puts underlying fundamentals on the side of Aussie weakness.
[B]Australian Dollar Looks Weak, But a Correction is Likely
Fundamental Outlook for Australian Dollar: Bearish[/B]
- The Reserve Bank of Australia held interest rates at 7.25% but signaled cuts were coming next
- Australian Employment Change doubled expectations, delivering 10.5k jobs in July
The Australian dollar lost -5.14% against its US counterpart last week. The initial selloff began as RBA Governor Glenn Stevens changed gears to signal the bank’s bias is now towards cutting interest rates. The bearish push gained momentum as the greenback staged an impressive rally against the G10 and nearly every other currency.
Looking ahead, July’s NAB Business Confidence will probably continue lower having declined to the lowest since 2001 in June as economic slowdown at home and abroad drives demand expectations lower. Westpac’s Consumer Confidence may correct a bit higher in August as Australians begin to factor in the preceding month’s near-22% drop in crude oil prices. The same dynamic will be in play for Consumer Inflation Expectations: the markets saw back-to-back readings at 5.9% in June and July, with some easing possible in the August report.
On balance, AUDUSD price action is likely to follow the majors and continue being driven by US dollar sentiment. A lucrative yield gap was the last source of the strength for the antipodean currency, and the new dovish tone coming from the RBA puts underlying fundamentals on the side of Aussie weakness. That said, the dollar looks a bit overextended following last week’s momentous moves and a retracement seems likely. Indeed, DailyFX Currency Strategist John Kicklighter has pointed out that the US Dollar Index has yet to test resistance at the bearish trend line in place since late 2005. To that affect, AUDUSD may see some strength as the greenback gives back a bit of ground in the coming days, with the downtrend to resume shortly afterward looking to take the pair beyond recent lows. - IS
Visit our recently updated Australian Dollar Currency Room for more resources dedicated to the Australian Dollar.