The Australian dollar continues to stagnate in the aftermath of Monday's RBA meeting minutes and ahead of this week’s meeting of the US Federal Reserve. Barring surprises, the Aussie is likely to remain well supported against the British pound, Canadian dollar and Japanese yen.
With Australia’s central bank offering little more than the status quo within its December meeting minutes, AUD/USD traders have little choice but to look now to developments on US monetary policy for inspiration—developments to be delivered by the Federal Reserve between 19:00 and 20:00 GMT on Wednesday.
Skepticism over the projected path of US interest rates has grown over the past month but any negative impacts from such skepticism have yet to be felt by the US dollar which, on a trade-weighted basis, remains close to long-term highs.
For AUD/USD, this means that should the Federal Reserve deliver its widely expected quarter-point hike this week but also signal to investors that it might adopt a “go slow” approach in 2019, handsome gains should be expected.
Against other major currencies, the Australian dollar offers a mixed bag.
AUD/GBP is, of course, driven to a large extent by Brexit news flow. Now at £0.568, the Aussie is buying 6 percent more sterling than it did seven weeks ago—an excellent return considering December’s blip.
It’s anyone’s guess what deal, if any, the UK and EU will strike in the coming months, but barring a Brexit cancellation, which could be achieved via a second referendum, it’s hard to see anything other than higher AUD/GBP rates ahead.
For AUD/CAD, too, investors would have to favour higher rates in the near term. The price of Canada’s largest export, oil, is tanking. Tuesday’s live quotes for WTI crude oil futures show an astoundingly low rate of $47.50 per barrel, which marks a 40 percent decline on prices 10 weeks ago.
Earlier in December, with oil trading $6 per barrel higher than it is now, the Bank of Canada alluded to problems for Canada’s economy should oil prices remain low. Should those problems develop, they would undoubtedly lead to reduced expectations for future interest rate hikes by the BoC and, consequently, give a lift to AUD/CAD.
Unlike USD/CAD, which struck an 18-month high on Tuesday, AUD/CAD remains well down on this year’s highs at only C$0.966 suggesting significant potential for appreciation.
The least volatile of major Australian dollar exchange rates, AUD/NZD, is again losing value. The rate lost 7 percent between August-10 and December-10 but climbed in all 5 days of last week on the back of profit-taking in the highly profitable (of late) New Zealand dollar.
After a return to form this week, New Zealand dollar strength is forcing AUD/NZD back towards last Monday’s N$1.043 low, a break of which would take the rate to its lowest level since July 2017.
Of AUD/NZD, it should be said, however, that a break below N$1.043 would keep the pair still within the broad N$1.03-1.14 range that has contained the majority of price action since early 2014. It makes sense that investors should consider switching to a bullish bias at rates below $1.04. Per Scotiabank’s forecast, AUD/NZD will end next year trading more centrally within its broad range at N$1.07.
AUD/JPY fell on Tuesday to a 6-week low of ¥80.66 but further weakness isn’t expected over the medium-term. Again according to Scotiabank, AUD/JPY will rally into the middle of 2019 towards ¥85.
The threat of a proxy war between the US and Iran in Iraq has pared back some of the recent gains of “risk-on” currencies.
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