The Australian Dollar is a popular currency among currency traders. This pro-growth currency has been relatively stable during the past few weeks, despite the US Dollar depreciating. The Australian dollar’s performance is driven by several factors, including interest rate differentials, commodity prices, and the global economy. Nonetheless, the latest fundamental headwinds that are weighing on the AUD could suggest downside risk for the currency in the next few weeks.
Last week, the Reserve Bank of Australia unexpectedly raised interest rates by 25 basis points. It’s a sign that the bank has turned its attention to keeping the economy growing. Previously, the bank had signaled an unwillingness to raise rates at the same pace as other central banks. However, the decision was overshadowed by U.S. ISM services data, which pushed the market down.
The RBA is looking to curb inflation, and Philip Lowe expressed concerns about how high rates would affect households. The bank also has a relatively high liquidity, which makes it attractive to carry traders. But, with the recent developments in the US and China, it is important to keep an eye on the AUD’s fundamentals.
AUD/USD is a pro-cyclical currency, meaning that it appreciates during good times and depreciates during bad times. The currency is sensitive to risk aversion and recession risks. As such, a rise in risk aversion, a broader global economic uncertainty, and increased growth risks are all factors that can weigh on the Australian dollar.
The pro-growth Australian dollar is likely to stabilize during the next few months. In the next few years, the currency should recover from a period of weakness. The Australian economy is affected by the changes in the Chinese economy. As such, if China reopens its markets, it would help boost the Australian economy. This should also strengthen the currency.
The Australian dollar is a major exporter to China. In November, exports fell by 8.7%. Meanwhile, imports were down by 10.6%. This reduced trade with China has caused a disconnect between commodities prices and the Australian dollar. The ongoing diplomatic tensions also add to this problem.
The recent rise in the value of the Australian dollar, compared to the US dollar, has been driven by a combination of increased interest rate differentials and a weaker USD. It’s also weighed down by a lack of solid data, including GDP. The GDP reading for October was disappointing, and the ISM services data has thrown a spanner in the works. But, with a stronger economic outlook for the rest of the world, the Aussie should start to see a recovery in the coming months.
The Australian Dollar is not the only pro-cyclical currency that is seeing a weaker run-up. The Japanese Yen is also struggling. The Russian war has also contributed to the decline of the AUD. The Federal Reserve is also a factor, as it controls monetary policy.
The US Dollar is also a powerful currency, but the economic fundamentals of the US are better than those of other nations. That means that investors are shifting to safe havens. The US Dollar is still vulnerable to a drop in the economy. That’s why, while the Fed has increased its benchmark interest rate, it’s likely that the Fed will cut rates in the first quarter of 2019.