Aussie vs. central banks. Forecast as of 19.03.2024

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The lack of signals from the Reserve Bank of Australia about increasing the cash rate in the future is unpleasant news for AUDUSD. However, a change in the Fed’s forecasts could make the bulls’ position even worse. Let us discuss this topic and make up a trading plan.

Weekly Australian dollar fundamental forecast

Markets were confident that RBA officials would leave a loophole to restart the monetary tightening cycle, but they did not. As a result, AUDUSD quotes collapsed to a two-week low. The bears are not stopped by US stock indices reaching record highs, good news from China, or stabilization of iron ore prices near $100 per ton.

All 40 Reuters experts predicted that the cash rate would remain at 4.35% in March. Neither expected the benchmark interest rate to rise in the near future. Of the 32 respondents, 13 believe that the RBA’s monetary policy easing cycle will begin in November, 14 believe that this will happen from June to September, and 5 believe that the central bank will delay monetary expansion until 2025.

The main arguments of the last group of economists are the expected reduction in inflation by the RBA to the target only next year and political bias. In their opinion, Michelle Bullock and her colleagues are ready to sacrifice a recession, but will not tolerate the return of high inflation, which will damage their reputation.

Dynamics of unemployment, wages and inflation in Australia

Source: Bloomberg.

Of the 40 experts surveyed by Reuters, 22 believe that in 2024, the cash rate will fall by 50 bps to 2.85%, 12 expect a reduction of 25 bps, and the rest think the rate will remain at the same level.

In January, consumer prices slowed to 3.4%. However, there is an opinion in the market that the progress of disinflation will slow down, and prices for services have anchored. This allows central bank officials to take their time.

The opinion of a slight majority of Reuters experts about the start of a 50 bps RBA monetary expansion in the third quarter is close to the Fed’s position. Derivatives give a 55% chance of a Federal funds rate cut in June and expect three acts of Fed easing in 2024. Their opinion could change as early as March 20th.

Dynamics of market expectations for central bank rates

  

Source: Bloomberg.

The policy of any central bank is data-dependant. The Fed is no exception. The US turned out to be more resistant to aggressive monetary restrictions than expected, which is already causing an acceleration of CPI and PPI. In a strong economy, inflation is usually not weak. Fed officials should think twice before maintaining their December rate forecast. If he shows the same three acts of monetary expansion in March, stock indices will reach another record high, Treasury yields will fall, and the US dollar and financial conditions will weaken. Inflation risks rising even higher. Does the central bank need this? I’m sure not.

Weekly AUDUSD trading plan

If the FOMC consensus estimate for the Fed funds rate rises from the current 4.6% to 4.9% or higher, the fall of AUDUSD towards the targets of 0.639 and 0.6325 will accelerate. In this situation, hold and periodically add up to short trades.

Price chart of AUDUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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