Wilting Australian Dollar Still Can’t Hope For Much RBA Support

Fundamental Australian Dollar Forecast: Bearish

  • Trade war fears have hit the Australian Dollar as hard as any currency
  • If they abate this week then AUD/USD could snap back
  • But Aussie rates look set for a record period of torpor, which may take a psychological toll

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The Australian Dollar heads into a new trading week uncomfortably close to its lows for the year against its US rival.

As a key exporter of raw materials to China, Australia has been caught up in the trade spat between Washington and Beijing which has flared intermittently over the past couple of weeks. There are signs of a more emollient or at least less confrontational approach now. But currencies with strong links to the global growth cycle are going to remain hostage to trade headlines. And that of course includes the Aussie.

Now this week’s main domestic event will be the Reserve Bank of Australia’s April monetary policy call. That’s coming on Tuesday. If the RBA holds the Official Cash Rate at its record, 1.50% low (and the venerable indicator from index provider ASX suggest that chance of that is 100%), then we’ll have seen the longest period of unchanged rates in Australian history.

An 18th month of steady policy will see the 1.50% OCR rate beat the 17-month tenure of the 7.5% level which held from February 1995 to July 1996. Moreover, with rate-futures markets now not pricing in a rise until well into 2019, the 1.50% looks set to beat the record by a very wide margin.

The irony is that the Australian economy isn’t doing all that badly. It is however stuck at a rather anemic pace and, with consumer debt levels elevated thanks to years of low rates, scope to stimulate it further by monetary means is limited.

If the RBA sticks to its recent line and evinces absolutely no urgency in the matter of raising rates, then the Australian Dollar may yet have further to fall. Better global trade headlines could see the bulls more cheerful, but, absent those, there are few reasons to get very excited about the currency.

It’s another bearish call this week.

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— Written by David Cottle, DailyFX Research

Follow David on Twitter@DavidCottleFX or use the Comments section below to get in touch!

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