Aussie Dollar (AUD) Predictions: Weakness vs USD, GBP and EUR Expected to Play Out Further

Further disappointment will come from the observation that the US dollar's outlook is looking more and more constructive; as our recent technical report on the AUD/USD can attest to.

Simply put the AUD looks vulnerable accross the board.

For reference, at the time of writing we see:

• The pound to Australian dollar exchange rate (GBP/AUD) is 0.86 pct higher at 1.8173.
• The euro to Australian dollar rate (EUR/AUD) is 0.87 pct higher at 1.4433.
• The Aus to US dollar exchange rate (AUD/USD) is 0.93 pct lower at 0.9269.

NB: The quotes here are representative of the mid-market; your bank will affix a spread at their discretion when transferring your money. An independent FX provider will however guarantee to undercut your bank's offer with a better rate. In some instances they are able to deliver up to 5% more FX. Please find out more.

Reserve Bank of Australia: Predictable outcome

There has not been the massive move in the AUD that typically follows a surprise move at the RBA, indeed the Bank is content on steering a steady course for now.

Currency markets will have noted that the RBA is gearing up for a period of prolonged steady rates. Thus - external matters and data release will likely dominate the Aussie going forward.

Soft patch for the AUD

The current weakness in the Australian dollar complex followss on from the previous Thursday’s notably poor performance.

"Below-forecast building approvals data on Thursday weighed on the currency, and the impact was felt throughout Friday. It was undermined further by rumours that the US will look to cut back stimulus levels at a faster rate than expected, which is bad news for the export-reliant Australian economy," notes Carl Hasty at Smart Currency Business.

A busy week for the Aussie

As mentioned the trend against the dollar appears lower for now. Nevertheless, this viewpoint could be disrupted this week as the calendar in Australia offers many an opportunity to surprise us.

Retail Sales overnight were firmer than expected; retail sales grew 0.6% in month to June (vs. -0.5% a month ago), the securities inflation slowed to 2.6% on year to July (vs. 3.0% last).

The Reserve Bank of Australia (RBA) rate decision will also be closeley watched, any surprising moves by the decision makers could prompt fresh AUD moves.

As noted by Lloyds Bank Research tell us:  

"It is widely expected the RBA will leave monetary policy unchanged and will likely maintain a neutral policy stance. While AUD is markedly lower from where it was at the July meeting, we still expect the Bank to reiterate its discomfort towards the level of the currency. We expect the downward bias in AUD to persist."

Swissquote Research reckon:

"We expect ranged Aussie pre-RBA verdict due on Tuesday. The RBA is expected to keep its cash rate target unchanged at 2.50%, the accompanying statement will define the short-term direction. The bias is negative due to divergent RBA/Fed bets."

Bank of America: RBA Has Settled on a Neutral Tone

What will the RBA deliver currency markets this week?

Bank of America Merrill Lynch Global Research are predicting the Bank will strike a neutral tone:

"We believe the RBA has settled into its neutral bias and is comfortable with its current policy setting and no change in tone on the outlook is expected. Its inflation forecasts will likely be revised lower as the carbon tax is abolished and those for GDP growth should remain unchanged.
Our forecast for monetary policy remains a middle ground between a dovish market and more hawkish economists.

"Yet we remain comfortable with our call that rates will be unchanged for an extended period. With the first hike of what will likely be a gradual tightening cycle expected in 1Q16."

BofA note that the RBA’s technical assumption that the A$ is at US0.93 should remain unchanged in its August forecast slate.