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Outlook of the Australian Dollar

Team Veye | 26 Feb 2018

Outlook of the Australian Dollar

It hasn’t been long when the AUD surged US81.83¢, its highest level in 32 months after US officials signalled their openness to a weaker greenback around 25th Jan’18.

A lot of analysts are of the opinion that the Aussie is poised to go into reverse as the Federal Reserve keeps raising interest rates, while the Reserve Bank of Australia leaves borrowing costs at a record low. There have been forecasts that AUD is likely to trade closer to 70 US cents than 80 cents in 12 months. Although the currency has advanced for eight straight weeks as the US dollar has slumped and rising prices for commodities such as iron ore have bolstered the outlook for Australia's exports but the big question is “Will the Aussie Dollar continue to strengthen?”

If we analyse historically, the Aussie dollar has spent months rallying hard against the greenback — but new figures suggest it might not have the fuel left to move up further. While the rest of the world’s currencies hold strong and even rise above the US dollar, the Australian dollar is faltering. While some experts suggest the Aussie dollar might recover and keep climbing above the 80 cent mark — others aren’t so sure.

Around 6th Feb, the Australian dollar had crawled a little higher against its US counterpart the day after global equity markets plunged amid widespread sell-offs that wiped out $US4 trillion in value — $66 billion of it off Australian shares. The local currency has clawed back a little lost ground despite the greenback strengthening during the last 10 days. The US dollar index climbed for a third straight session from a three-year low on buying from traders closing out bearish bets against the dollar versus the euro, sterling and riskier, commodity-linked currencies.

Some analysts suggest that Currencies at risk during a global equity slump are higher-yielding commodity- linked currencies like the Australian dollar and emerging market currencies, which often slide when risk appetite drops.

The Commonwealth Bank’s FX Strategy team states - If higher bond yields and recent spike in stock market volatility have you concerned the Australian dollar will continue to slide, don’t be. They strongly believe that the recent weakness won’t last; it sees the Australian dollar rebounding strongly in the months ahead.

When the global economy is strengthening, it has often heralded weakness in the US dollar in trade-weighted terms at least in the past, let’s see if the same stands true in the coming months.

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