Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Currency Market Forecast - Further Aussie Dollar (AUD) Unwinding Ahead due to softer Inflation

Currencies / US Dollar Jan 26, 2007 - 03:33 PM GMT

By: Ashraf_Laidi

Currencies This week's softer than expected consumer inflation figures from Australia have eroded chances of a February rate hike and may have finally concluded the 4 ½ year old tightening cycle adopted by the Reserve Bank of Australia, which lifted interest rates from 4.25% to 6.25%. The headline CPI slowed to 3.3% in y/y in Q4 from 3.9% in Q3, undershooting expectations of a 3.6% reading. Although the core CPI (excluding volatile items) edged up to 2.7% from 2.6%, the seasonally adjusted weighted median CPI slipped to 3.0% from 3.2%. Markets were especially caught off guard by the 0.1% decline q/q, which was the first decrease in 8 years. The soft CPI report was clearly a result of falling energy and commodity prices, which triggered a 12.4% drop in gasoline costs and a 5.2% in fruit prices. But the report was instrumental in dampening probabilities of a February rate hike from as much as 80% to less than 15%.


But it's not all about slowing inflation. The severe draught has weighed on the economy, causing Q3 GDP growth to slow to 0.3% q/q, its lowest rate since Q2 2003. Retail sales have also slowed while rising interest rates may once again start to burden consumers amid the general cooling. The important role of slowing inflation on monetary policy is that it serves as the main counterpoint to tightening labor markets, which have been strengthened by a 4.6% unemployment rate, the lowest in 30 years. Albeit volatile, Australia's job figures continue to show a strong participation rate of 64.9%. But with inflation cooling, GDP growth struggling below 1.0% and interest rates at their highest in 8 years, the case for further monetary tightening weakens by the day.

The combination of weakening energy prices and a sharp reversal in expectations from a February rate hike earlier this week to no hike after Wednesday's CPI figures has triggered an all round assault on the Australian dollar, resurrecting calls for unwinding in FX carry trades. The unwinding was short-lived in the yen crosses due to remaining uncertainty over the Japanese interest rates.

While the aforementioned analysis suggests further declines in the Australian dollar, the following charts present the case for further downfall. Here are a few cases:

AUDEUR WEEKLY
The AUDEUR cross rate suggests further downside potential considering heightened certainty for at least 25 bps of tightening from the European Central Bank this quarter as communicated via the officials' consistently hawkish rhetoric. With consumer demand and business confidence continuing to show signs of strength, the growth arguments for further rate hikes are added to the inflation arguments. The aforementioned prospects for Australian monetary policy suggest further downside, with 59.40 and 59.00 as the next targets from the current 59.75.

AUDEUR WEEKLY

AUDUSD DAILY
Although the pair has plunged by 2 cents in two days, breaking the major 77.60 support (formerly a major resistance) to 77.3, we expect prolonged selling towards the 77.00 as an initial target. Next week's FOMC meeting is expected to produce a relatively optimistic statement, which could make the Aussie one of the primary casualties of a USD rally. The only major risk to this forecast is a sharp run up in oil prices --over $2.00 per day -- which could elevate the pair towards the 77.60 resistance.

AUDUSD DAILY

AUDCHF WEEKLY
As the Swiss National Bank continues expressing concern over franc weakness, a March rate hike remains firmly cemented in the works. In the event that evidence of a slowing Australian economy persists, markets may even begin pricing a rate cut later in the year, which could trigger sharp bouts of unwinding in the AUDCHF carry trade. The hefty yield differential of 4.25% in favor of the AUD is the reason why the chart below has yet to show further downside. With both the MACD line and signal lines above zero, there're appears a strong likelihood for prolonged selling to call up the 96 centimes 95.45 centimes levels from the current 96.50. Upside capped at 97.20.

AUDCHF WEEKLY

GOLDAUD WEEKLY
Charting gold against the Aussie highlights the ensuing broad weakness in the Australian dollar, as the weekly chart has not shown significant decline since last September. Gold's resilience against the high yielding currency, and its approach towards the 8-month trend line resistance increases chances of a breach past A$ 839 and onto the A$863 target.

GOLDAUD WEEKLY

By Ashraf Laidi
CMC Markets NA

Ashraf Laidi is the Chief FX Analyst at CMC Markets NA. This publication is intended to be used for information purposes only and does not constitute investment advice. CMC Markets (US) LLC is registered as a Futures Commission Merchant with the Commodity Futures Trading Commission and is a member of the National Futures Association.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules