AUTRALIAN DOLLAR FORECAST: NEUTRAL
- The Australian Dollar rallied because the RBA took the foot off bond yields
- Commodities undermined AUD bullishness with power provide added
- There’s a tussle between yields and commodities. Can AUD/USD break-out?
Australian bond yields exploded larger this week. This was within the aftermath of the trimmed imply CPI learn for the third quarter coming in above expectations. This could usually be supportive of the Australian Greenback. Nonetheless, whereas rates of interest have been going north, commodities have been going south, and the Aussie was left on the crossroads.
The RBA seems to have stepped away from holding down the rate of interest on the April 2024 Australian Commonwealth authorities bond. The central financial institution has beforehand focused 0.10% for this bond. If so, that is successfully a hike in charges. Going into the top of the week, it’s buying and selling above 0.80%.
The RBA financial coverage assembly is that this Tuesday. Globally, central banks have lately turned extra hawkish than they’ve been beforehand. With inflation operating sizzling in most components of the world, central banks appear to have turned their consideration away from stoking post-pandemic progress, to preventing untamed costs.
After feedback from Federal Reserve Chairman, Jerome Powell, through the week, the notion of this bout of inflation being transitory seems to have been deserted. Provide chain bottlenecks proceed to plague world commerce.
An issue for coverage makers is that producer worth inflation (PPI) indicators are at very excessive ranges. That leaves companies with the selection of both rising costs that buyers pay, or lowering profitability, or a mix of those. On Friday, annual Australian PPI was launched and got here in at 5.3% to the top of September, above forecasts of 5.0%
For the Australian Greenback, it’s a battle of relative rates of interest. The RBA appear prone to make an adjustment to financial coverage on Tuesday afternoon native time. Then the Federal Reserve will end their FOMC assembly some 38 hours later. The hole in timing may see AUD/USD volatility and relying on the extent of hawkishness from the RBA, may very well be AUD optimistic.
Commodity costs are additionally prone to play a job for AUD/USD and should counterbalance beneficial rate of interest differentials for the Australian Greenback. Vitality and steel commodities have moved decrease by way of the week however have steadied going into the weekend. There have been plenty of optimistic headlines for extra provide of power, however costs have remained comparatively excessive. Structural issues inside the power sector are nonetheless on the radar.
After the RBA assembly on Tuesday, Australian constructing approvals and commerce stability can be launched on Wednesday and Thursday respectively.
AUD/USD AGAINST AUSTRALIA-US 10-YEAR YIELD SPREAD AND IRON ORE
— Written by Daniel McCarthy, Strategist for DailyFX.com
To contact Daniel, use the feedback part under or @DanMcCathyFX on Twitter