AUD/USD Coming Back From 0.7006 – But Challenges Ahead

The Australian dollar’s status as a risk-friendly currency has placed it at something of a disadvantage in recent days. The global move back in favour of the US dollar has hurt the Aussie, which is perceived by many to be exposed to risk due to its links with global trade. However, it has since managed to rise somewhat from its worst performance in September, which was 0.7006. This sort of pessimism was not the case during the immediate aftermath of the pandemic, at which point a renewed surge of risk-friendliness swept up the currency.

In terms of underlying trends within the price charts for the Aussie, the picture for the currency looks mixed – though there are some seeds of positivity that its value may soon rise. One analyst suggested that the Relative Strength Index for the currency, which monitors whether or not it is ‘overbought’, is pointing to a temporary blip. The analyst said that the bearish moves caused by the greenback that have come to the fore in the last few months may in fact be short term – and that the underlying trend remains positive. In part, the answer will lie in whether or not traders feel confident enough to tie up cash in riskier assets once more – especially with the US presidential election on the cards.

The actions of Australia’s central bank are also likely to become relevant in the near future following press speculation about its intentions. According to some reports, the bank is considering slashing its ‘official cash rate’ (OCR) in the coming days. If it does decide to lower this even further than current levels when it meets later this week, the markets may well respond.

The economic calendar also contains a number of other events that Aussie dollar traders will no doubt want to be aware of. Friday morning will see a retail sales release from the Australian Bureau of Statistics. This will cover the month of August, and is due out at 1:30am GMT. This is set to remain firm at its current level of -4.2%. Looking ahead to next week, there may be something of a slowdown in economic calendar releases at the start of the week given the Labour Day holiday. However, the slowdown won’t last for long, with the Commonwealth Bank expected to publish its services purchasing managers’ index at 10pm GMT. This release, which will cover September, is again expected to hold firm – this time at 50.

Monday morning, meanwhile, will see the publication of a crucial estimate of inflation rates for September. Year on year, this was last recorded at 1.3%. There is currently no indication as to how or if it will change this time around. The release, which will come from the University of Melbourne’s Faculty of Business and Economics, is due out at midnight.

Nigel Frith

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