AUD/USD remains pressured ahead of RBA decision
James Chen, CMT November 6, 2017 5:32 PM
After a busy past week, scheduled macroeconomic events in the current week slow down considerably. The focus of this week’s events will revolve around central bank activity in Australia and New Zealand. The Reserve Bank of Australia (RBA) is up first with its rate decision and statement on Tuesday in Sydney. The RBA’s monetary policy statement will then follow on Friday.
Australia’s central bank is widely expected to keep interest rates unchanged at 1.5%, especially since recent economic data has been soft, including both disappointing retail sales numbers as well as unexpectedly low inflation readings. The RBA has recently continued to harbor concerns over weak inflation, low wage growth, and the relative strength of the Australian dollar, which have combined to preclude the central bank from raising the cash rate from its current record low.
Meanwhile, the US dollar has generally continued to be supported by high expectations for rising US interest rates in December and into 2018 under the helm of newly-nominated Fed Chair Jerome Powell, as well as anticipation of impending US tax and other fiscal reform. Last week’s job report out of the US disappointed high expectations when it came out at “only” 261,000 jobs added in October. However, September’s negative reading due to the impact of hurricanes was revised up to a positive number, and August was also revised substantially higher. In addition, the unemployment rate for October dipped unexpectedly to 4.1%, its lowest level in 17 years. Therefore, on balance, the jobs report on Friday painted an optimistic picture of the US employment landscape, which has contributed to supporting the US dollar.
Going forward, the divergence between the current monetary policy stances of the hawkish-leaning Fed and dovish-leaning RBA is likely to continue weighing on the AUD/USD currency pair. This will especially be the case if the RBA delivers a dovish statement on Tuesday. Since early September, when AUD/USD hit a long-term high above 0.8100, the currency pair has been in a sharp decline as the US dollar has climbed in recovery mode and the Australian dollar has been pressured in part by an increasingly dovish RBA. Most recently, AUD/USD has been trading in a consolidation after having broken down below key support around 0.7750 in late October. With any further RBA-driven pressure on the Australian dollar, AUD/USD is potentially poised to extend its downside correction, with the next major downside target around the key 0.7500 support level.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.