Since the beginning of March, the AUDUSD pair has spent most of the time in the consolidation range of 0.76-0.78. Why is this happening, and will the important events of the week ending June 18 be able to push the pair out of the beforementioned range?
Weekly Australian dollar fundamental forecast
The market, like a child, in most cases does not need our advice, but our examples. Australia serves as the best example that the Fed is right about the temporary nature of inflation. The country’s economy and labor market have managed to fully recover to pre-recession levels. However, this did not lead to higher wages or accelerated consumer prices. The RBA still pursues the ultra-easy monetary policy, which discourages the AUDUSD bulls from going ahead.
Australian economic recovery
Even though most of the time since the beginning of March, AUDUSD has been in a trading range of 0.76-0.78, traders have not lost faith in the Australian dollar. Hedge funds hold net AUD longs of 20,509 futures contracts and sincerely hope the RBA will join the central banks in Canada, Norway, and New Zealand in declaring monetary policy normalization. In July, Philip Lowe and his colleagues will decide on the fate of the QE program. At the June meeting, the RBA officials outlined an action plan, including various options for adjusting the QE program: from moving to buying securities with longer circulation periods to introducing a dependence of transaction volumes on data flow and economic prospects.
The RBA is not going to raise the cash rate until 2024 when inflation is expected to stay in the 2-3% range for a long time. Given the acceleration of consumer prices in the US, the Fed will theoretically take a step towards monetary restriction first, which is a bearish factor for AUDUSD.
Dynamics of inflation and rates in Australia and the USA
A strong commodity market creates favorable conditions for the Australian dollar, while Canberra’s tensions with Beijing are a major deterrent to AUD purchases. It should be understood that a significant part of the positive news from China contributed to the accelerated economic growth in Australia over the past two decades. At the same time, the diplomatic conflict and the trade war, forcing Australia to conclude free trade agreements with Japan, South Korea, Indonesia and the UK, and thus diversify the existing risks, do not positively affect country’s GDP.
Thus, AUDUSD bulls are supported by the full recovery of the Australian economy and labor market, a strong commodity market, and expectations of the RBA’s adjustments to the Australian QE. The bears are supported by a faster acceleration of inflation in the US than in Australia, as well as the conflict between Canberra and Beijing. The balance between negative and positive news leaves AUDUSD in a consolidation range of 0.76-0.78. Will the Fed meeting, Philip Lowe’s speech, and the Australian employment data change the situation?
Weekly AUDUSD trading plan
In my opinion, it will be possible to enter AUDUSD mid-term purchases if the pair rises above 0.78. Its fall below 0.7685 will increase the risks of short-term sales.
Price chart of AUDUSD in real time mode
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