AUD/USD Stuck Near 0.7006? RBA, Risk Now in Spotlight

Nigel Frith
American Dollar Bill folded in between two Australian Dollar Bills

 

In recent days, the Aussie dollar has struggled to preserve a position much higher than its low point from last month.  At one stage in September, it hit the 0.7006 level in the markets.  Since then, however, it has failed to scale much higher than this – a development that is down, in part, to the global shift back towards the greenback.

The US dollar has been snapped up in recent days in a highly febrile anti-risk atmosphere fuelled by the pandemic-related illness of President Donald Trump and the upcoming US election.  With the Aussie dollar considered one of the world’s premier risk-on currencies, its inability to climb higher was not much of a surprise.  In terms of central banking action, meanwhile, the Reserve Bank of Australia (RBA) shocked the markets this week when it revealed that it would not be going ahead with an interest rate cut.

Markets had expected the RBA to make that move, but it did not transpire when the bank finally met.  Instead, interest rates were kept at their previous level – and some analysts believe that there will be no big move in favour of rate cuts to come.  The Australian government, however, has stepped into the perceived void with some fiscal intervention.  Josh Frydenberg, who serves as Treasurer (a post equivalent to finance minister) in the federal Australian government of the Liberal Party’s Scott Morrison, has released a fresh tweak to the national budget.

He is due to provide personal tax relief of almost AUD$18bn – with more to come in the next few months.  Whether this will be enough to shift the Aussie’s value, however, remains to be seen – especially given the context of global uncertainty caused by the pandemic and American politics.  In terms of technical analysis, one strategist said that the underlying price chart position for the Aussie is actually good – even though it is now way behind the 2020 high of 0.7414.

According to this analyst, indicators suggest that the dip in value was merely a product of a temporary bearish move rather than a full-on reversal.  A wider fundamental analysis may be needed to ascertain the short-term moves that the Aussie might make.  According to the economic calendar, Friday morning is packed with relevant events.  Home loans figures for August will be released from the country at 12:30 am GMT.  This was last recorded at 10.7%.  Data on investment lending for homes in August will be out at 12:30 am GMT.  This was last seen at 3.5%.

There is currently no analyst consensus on which direction either metric will trade in next.  An hour later at 1:30 am GMT, there will be a financial stability review report from the RBA.  This will look at how stable the country’s pandemic-hit financial system currently is, and will assess some potential threats to it going forward.


Nigel Frith

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