Market Update – USD AUD
A picture speaks a thousand words. There’s not much added value in me applying my technical view to this market. Clearly, the trend is positive for AUD, and as we techies love to say, “let the trend be your friend”!
For once, it’s blindingly obvious what’s driving this trend. The Reserve Bank of Australia have raised interest rates twice in two months, with their benchmark rate now standing at 3.5%. That compares with measly 0.15% offered by the US dollar. More importantly, the US administration have indicated that rates there will remain low for a long time, which is helping to drive a flow of funds out of the dollar, and into….Anything that offers a yield! That in turn is driving high yielding currencies higher. The high yield basket is typically the “commodity currencies”, like AUD, CAD, and the Rand. Those currencies have the added benefit of a soaring gold price to lend a further tailwind. Right now it’s hard to see any argument against selling USD / buying yield, unless we see another financial meltdown, or an increase in stock market volatility. High yielders benefit from the current conditions, but easily take fright if investors become risk adverse.
In the short term there is nothing to suggest an imminent trend change, so we will stick with the trend and suggest that the Australian dollar will continue to strengthen against its US counterpart.
Any opinions expressed in this document are those of TorFX
analysts. Any analysis and/or forecasts provided are aimed at
helping clients understand market conditions and developing trends.
Clients are wholly responsible for their own trading
decisions.
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