Australian Dollar Trading: Will The Aussie Soar?



The Australian economy is one of the strongest in the region of southeast Asia and Oceania. Despite its potential, the Australian economy has not remained unaffected by the adverse economic conditions that have influenced the performance of major economies across the world.

As a result, the Australian dollar, nicknamed “Aussie” by traders, has struggled to regain its footing against the US dollar and seems to be far away from getting back to the multi-year high of September 2017 when it traded at $0.80 against its US counterpart.

In this article, we will examine how has the Australian economy performed in the last few months, and which will be the challenges for the Australian dollar.

Contents

Reserve Bank of Australia To Decide On Rates

On Wednesday, the Reserve Bank of Australia (RBA) will announce its decision on borrowing costs. The RBA was one of the first central banks to implement strict monetary policy to fight back inflationary pressures.

Economists suggest that the Australian central bank council is likely to keep rates unchanged after its upcoming meeting. The RBA has not adjusted rates in the last few months as it monitors the effect of high borrowing costs on the country’s economy.

ANZ market analysts suggest that it would be too soon for the Australian central bank to ‘pivot' its policy stance towards interest rate cuts as inflation in some key areas remained higher than its target. Commenting on the RBA’s policy, they note: “This will likely see the RBA maintain its tightening bias and hawkish tone in the February statement. That said, risks might be starting to skew toward an earlier commencement of rate cuts.”

Australian CPI Inflation Drops But Not Enough Yet

A report released by the Australian Bureau of Statistics (ABS) on January 31st showed Australian CPI inflation falling to 4.1% in the fourth quarter, on an annualised basis. The figure surprised analysts as they had expected inflation to come in at 4.3%. The lower than anticipated number appears to push back expectations of an interest rate cut since price levels seem to retreat without any monetary policy easing.

Commenting on the Australian inflation data, the country’s Treasurer Jim Chalmers wrote on X, “today's very welcome results are even better than market expectations, but we know people are still under pressure, which is why @AustralianLabor's cost of living tax cuts for middle Australia are so important.”

The Australian Treasurer added that “new data from the @ABSStats shows we are making very welcome and encouraging progress in the fight against inflation, Government policies are helping, but this is not mission accomplished because we know people are still under pressure.”

Economists at EY told The Guardian reporters that the inflation data showed the RBA’s 13 rate rises since May 2022 had worked and there was no reason to lift the cash rate next week, adding that “domestic sources of inflationary pressures are still present – including continued strong demand for housing, rising insurance premiums and a tight labour market.”

What Do Analysts Note Regarding the Australian Dollar

Economists at CIBC Capital Markets said in a report that they don’t expect the Australian dollar to weaken against the US dollar and kept their first quarter forecast unchanged. In their report they note that “we do not expect RBA cuts until Q3 or later (after the Fed). Stable RBA policy amid Fed cuts, and strength in the Australian services sector means that AUD should be relatively stable, despite ongoing China weakness. We think AUD/USD will continue to react to Fed expectations – with March FOMC pricing now at 50% chance for a cut, we think further AUD downside is limited, and maintain our AUD/USD forecast of 0.6600 in Q1.”

Source: Admirals MetaTrader 5. AUD/USD – Monthly Chart. Date: 1 May 2016 to 2 February 2024, captured on 2 Feb 2024. Past performance is not a reliable indicator of future results or future performance.

 

A report published by Rabobank seems to be in line with CIBC forecast regarding the Australian dollar’s resilience. Rabobank’s economists wrote: Amid speculation that fresh RBA forecasts could imply that it could take CPI inflation a little longer to return to target than previously estimated, market rates are suggesting that the RBA is likely to remain more hawkish on policy than either the Fed or the ECB. At first sight, this should be supportive for AUD/USD. However, in our view, the market is likely to continue pricing out some of the Fed rate cuts that had been anticipated for the first half of this year. This suggests scope for a firmer USD near term.

Source: Admirals MetaTrader 5. AUD/USD – Daily Chart. Date: 22 September 2023 to 2 February 2024, captured on 2 Feb 2024. Past performance is not a reliable indicator of future results or future performance.

 

Analysts at Danske Bank suggest that economic growth and relative interest rates, such as the Fed’s, could weigh on the Australian currency. Commenting on the AUD/USD currency pair dynamic, they noted that “with Australian leading indicators pointing firmly downward, and US economic data still remaining solid, we expect relative rates and growth to weigh on AUD/USD going forward. AUD/USD remains firmly in the hands of global risk sentiment, where the outlook for inflation and rate cuts remains a key driver. We generally think that the Fed will opt for a more gradual pace for rate cuts, which will be a supportive factor for broad USD. We maintain our downward-sloping forecast profile unchanged.”

Australian Dollar Trading With Admirals

The Australian dollar against the US dollar (AUD/USD) currency pair is one of the most traded combinations among forex traders. As Australia is one of the strongest economies in the region and closely related to China, the Australian dollar references in the financial media are common.

Beginner traders who’d like to include the AUD/USD pair as well as the AUD/NZD, EUR/AUD, AUD/JPY pairs in their portfolios should focus on educating themselves regarding the principles of trading and get access to insights related to the aforementioned currencies.

Brokers give access to a range of educational materials such as articles, guides, webinars and other videos that help beginner traders understand how trading works. Strengthening the knowledge around trading allows beginner traders to understand how to build a strategy as well as manage their risk by utilising the stop loss and the take profit orders.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.





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