If the economy of your main trading partner gets an economic adrenaline shot, you can anticipate an increase in external demand and a strengthening of your currency. Let’s discuss this topic and make a trading plan for the AUDUSD pair.
The article covers the following subjects:
Highlights and key points
- China’s monetary stimulus strengthened the aussie.
- The growth of global risk appetite boosted AUDUSD quotes.
- Geopolitics and Fed rhetoric forced the pair to slow down.
- One can buy the AUDUSD pair on pullbacks to 0.6825 and 0.677.
Weekly Australian dollar fundamental forecast
The Federal Reserve’s aggressive monetary expansion and China’s largest stimulus since the pandemic have sparked a surge in global risk appetite, reigniting investor interest in carry trades and enabling the AUDUSD currency pair to skyrocket to its highest levels since February 2023. Only geopolitical factors managed to prevent bulls from continuing the upward trend. Concerns about the potential for a broader conflict in the Middle East prompted a decline in stock indices and the Australian dollar.
Previously, the Australian dollar relied on divergence in the monetary policies of other countries. However, in September, it had new factors to consider. At its most recent meeting, the Reserve Bank of Australia maintained its key interest rate at 4.35% and reiterated its stance that monetary expansion was not expected in the near term. In addition, Michele Bullock stressed that the RBA did not address the possibility of raising the cash rate, which was interpreted as a sign of a potential shift in the central bank’s stance from hawkish to a more neutral position. The likelihood of a reduction in borrowing costs increased to 70% from 50% in December.
Monetary policy tightening by the RBA and other central banks
Source: Bloomberg.
The RBA has grounds to maintain the key rate at its current level. The regulator has pursued a less restrictive monetary policy than other central banks, and the influx of immigrants supports labor market strength while boosting rents, which helps keep inflation elevated. Nonetheless, consumer prices returned to the 2-3% target range in August for the first time since August 2021, prompting the RBA to reconsider its hawkish rhetoric.
Australia’s key rate and inflation change
Source: Bloomberg.
China’s large-scale monetary stimulus is, in fact, a form of economic support for Australia from its primary trading partner. The increase in domestic demand in China will have a favorable impact on both Australian exports and the commodity market. The Australian dollar is a commodity currency, so favorable conditions for iron ore and other commodities are beneficial for the AUDUSD exchange rate.
The improvement in global risk appetite provides further support for bulls. The Australian dollar is a yield-bearing currency often used in carry trade operations. It was adversely affected in early August when the main funding currency, the Japanese yen, rose sharply following the Bank of Japan’s decision to raise the overnight rate. However, Japan is now pausing its monetary restrictions, which is beneficial for the Australian dollar.
Weekly AUDUSD trading plan
Thus, the uptrend in the AUDUSD pair remains solid. Despite a potential pullback due to geopolitical factors and a slowdown in the Fed’s monetary expansion, the pair’s medium-term prospects are bullish. Therefore, one may buy the aussie on a rebound from the support levels of 0.6825 and 0.677.
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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