Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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:

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.


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.


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.


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.


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 - 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