Market Analysis

AUD: Hovering But Vulnerable?

The even greater likelihood of another two US rate hikes in 2018 following Friday’s healthy US jobs and earnings data have given the USD a broadly better bid tone which held through the Asia session.  Admittedly the prospect that President Trump may sign off on tariffs on another US$200 billion of imports from China complicates matters somewhat in the forex space with currencies such as the JPY picking up something of a safe haven bid. But some currencies are doubly exposed as their own local central banks continue to run monetary policy that’s less tight than the Federal Reserve while their economies are linked to China. The Australian dollar is  a case in point. While AUDUSD opened just above 0.7100 in Europe on Monday, there’s arguably little technical support for the Australian dollar ahead of 0.7000. And although some Australian banks raised their variable mortgage rates last week, that could allow the Reserve Bank of Australia (RBA) to stick to its current policy of keeping its benchmark rate on hold even as US Treasury yields tick higher. Traders might understandably be wary at present of entering new shorts in AUDUSD at levels close to recent market lows but might also conclude that the AUD continues to face significant headwinds that preclude much of a rally. It might not take much to convince the currency market that a test of 0.7000 is warranted.

by Neal Kimberley, External Currency Analyst.