Naeem Aslam Chief Market Analyst, ThinkMarkets
Naeem Aslam Chief Market Analyst, ThinkMarkets

The Aussie Dollar - where to go from here?

A weaker currency is mostly considered as the key by most central banks if they want to stimulate growth. Monetary policy is the common approach that they use to devalue the currency. The currency warmed to a level of 0.6859 at the start of this year when the Fed were immensely bullish with respect to their interest rate hike. Nevertheless, it then regained its losses by touching the high of 0.7810 in late April for this year which was nearly over 14.75%; a signifi cant move when it comes to currency trading. Since then, we have given up some of these gains, but it is still up nearly 11.07% since the start of this year.

First Published: e-Forex Magazine 73 / Currency Clips / September, 2016

The Aussie Dollar - where to go from here?

A weaker currency is mostly considered as the key by most central banks if they want to stimulate growth. Monetary policy is the common approach that they use to devalue the currency. The currency warmed to a level of 0.6859 at the start of this year when the Fed were immensely bullish with respect to their interest rate hike. Nevertheless, it then regained its losses by touching the high of 0.7810 in late April for this year which was nearly over 14.75%; a signifi cant move when it comes to currency trading. Since then, we have given up some of these gains, but it is still up nearly 11.07% since the start of this year.

The question is where we go from here? The Australian central bank has been very busy with respect to cutting interest rates and used monetary policies to stimulate growth. It has already fi red twice in the past four months by cutting the interest rate, and perhaps, they want to use the “wait and see” approach before they make their next decision. In the most recent meeting, Australia’s central bank didn’t move a muscle and stood fi rm when it came to their interest rate decision. It is not only their own decision which the bank is wary of, but they are also looking at other global economic affairs and wants to see how the US Fed will behave in a few weeks’ time when they meet. 

Central banks will usually feel a lot more comfortable in making their decisions when they have all of the data, and on the last occasion, the bank was certainly waiting for the inflation figures; only in the light of these numbers they can make a more appropriate decision.

The odds are stacked that we may see more rate cuts from Australian central bank for this year but probably one at most. This opens the floor for more weakness for the currency.

Speaking from a technical perspective and by looking at the daily chart, we have broken the downward trend line (shown in yellow) and this confi rms that the recent downward move is losing steam. The upward trend line (shown in green) is still intact, and as long as we stay above this trend line, we have confi rmation that bulls have momentum behind them. However, breaking the low of May 24th (which is 0.7145) could increase the downward selling pressure.