AUDUSD: Rallies ahead of Fed Decision

15 cze 2022

A quick update on the fundamental position for AUD:
• Unemployment at 3.9% - multi generational lows
• Trade balance AUD 10.5 billion in April and likely to improve on commodity boom
• GDP at 3.3% year-on-year
• CPI at 5.1%

The strength of the US Dollar is rational given the rising interest rate environment from the Fed. What seems to have been missed by the market is that the RBA has joined the race in jumbo rate hikes and has its ears pinned back to rein in ultra-loose monetary policy.
The RBA does two things very well. They do nothing when nothing is warranted, and they act decisively when action is needed. Action is needed here, and they are going for it. The free money party is over. Conditions need to be tightened and as a consequence, rates are going way north.
• Private and public debt at manageable levels


One gets the feeling that we will wake up one day in the not-too distant future when AUD/USD is at equality and we will say, ‘well, that kind of makes sense’.
If that doesn’t happen, the RBA may need to go beyond ‘neutrality’ to do the work that the exchange rate should be doing.

Technically,

The Australian dollar initially tried to rally during the trading session on Tuesday but gave back gains to show signs of weakness. By doing so, the market looks as if we are going to continue to see an attempt to push through the bottom. If we do, that could open up the Aussie dollar for a challenge of the 0.68 level and then after that the 0.66 level.
Because of this, I would be very cautious about trying to buy this market, even though we could get a little bit of a bounce. That balance will more likely than not only bring out fresh selling as this is a market that has been negative for good reason.

On the Flip Side, this is a market that will see the 0.70 level as a major resistance barrier, so I think it’s going to take quite a bit of effort to get through that area. If we do, that’ll be impressive, but do not think it’s something that changes much, because there is still so much further to go in order to make up for the losses. Because of this, I think that you are looking for opportunities to “sell the rally” when rallies do in fact eventually happen.

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