
Last Friday’s NFP was disappointing. The reaction of the markets was astonishing. Will it last longer? Let's find out the main trade opportunities for the upcoming week.
2019-11-11 • Updated
The Australian dollar has been in a downtrend versus the greenback since the start of 2018.
Last year, the US currency strengthened against its Australian counterpart as the Federal Reserve was increasing the federal funds rate. The Reserve Bank of Australia had kept its Cash rate at 0.5% from August 2016 until June 5, 2019, when it reduced it to 1.25%. Since then, AUD/USD has once again turned down. Although the Fed has stopped rate hikes and the market now expects the US central bank to cut rates two times this year, the Aussie still keeps depreciating. It happens as traders think that the RBA will be more aggressive in its policy easing than the Fed.
According to bond futures, the probability of another 25-bps rate cut in Australia in July equals to 66%. If the RBA doesn’t make this move next month, market players are almost certain that it will happen in August.
Australian economy
Australian domestic figures are soft. The nation’s problems are serious: low wages, a housing slump and below-target inflation.
The RBA targets the unemployment rate of 4.5%, while the current level of the indicator is 5.2%. The annual GDP growth in Q1 fell to 1.8% (vs. 3.2% in the US), the lowest level since 2009. Retail sales contracted by 0.1% in April. Sales of new homes in Australia fell by 11.8% in April making the biggest decline since 2005. Private capital expenditure - a leading indicator of economic health - went down by 1.7% in the first 3 months of the year. Quarterly CPI growth slowed down from 0.5% in Q4 to 0.0% in Q1.
You can see that wherever we look, the picture is negative. That’s why analysts are so sure that the RBA will continue to cut rates.
AUD as a risky currency
The ongoing trade war between the United States and China is bad for the Australian currency. China is Australia's major trading partner and its well-being is very important for Australia's economy and, consequently, the AUD.
The future will be decided at the G20 summit that will take place on June 28-29. If the US President Donald Trump doesn’t find common grounds with the Chinese leader Xi Jinping, America will probably announce the next rounds off tariffs on $325 billion of imports from China. That will hurt the Asian economy and, consequently, the AUD.
Conclusion
The decline of the AUD won’t be very rapid as the USD will be weakened by the Fed. In addition, the price of iron ore, Australia’s biggest export, is quite resilient. However, only a real US-Sino trade deal is capable to reverse the downtrend in AUD/USD. Until that happens, the Aussie’s pullbacks to the upside will be temporary. Even if the Fed cuts its main rate, it will still be higher than that of Australia.
Last Friday’s NFP was disappointing. The reaction of the markets was astonishing. Will it last longer? Let's find out the main trade opportunities for the upcoming week.
After multiple hawkish remarks over the past few days from non-voters members, the Federal Reserve chairman Powell surprised the markets with some dovish remarks…
Institutional investors speak about further growth in the stock market. In the exact market that has doubled since COVID-19 and doesn’t plan to stop. Is it possible?
The stock market has reversed, and now it’s going lower and lower…
Walmart is one of the biggest retail corporations in the US, with $244 billion in total assets. Does it worth buying amid rising prices and supply concerns that shatter the world economy?
Japan's inflation is set to reach 2% in April's reading, for the first time since 2015. But what about the weaker Yen?!
FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.
Your request is accepted.
A manager will call you shortly.
Next callback request for this phone number
will be available in
If you have an urgent issue please contact us via
Live chat
Internal error. Please try again later
Don’t waste your time – keep track of how NFP affects the US dollar and profit!
Beginner Forex book will guide you through the world of trading.
We've emailed a special link to your e-mail.
Click the link to confirm your address and get Beginner Forex book for free.