Skip to content

CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved. CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved.

Australian dollar outlook: a sinking US dollar floats all boats

The Australian dollar found firmer footing on US dollar debility; the Fed look likely to raise by less than 75 bp while the RBNZ are adopting it and the RBNZ might know something that the RBA doesn’t.

Source: Bloomberg

Australian dollar forecast: neutral

The Australian dollar surged toward a two-month high at the end last week as the US dollar collapsed on the market perception of a change in Federal Reserve policy.

Federal Open Market Committee (FOMC) meeting minutes revealed what astute observers already knew. That is, ongoing rate hikes appear likely to be less than the four 75 basis point (bp) jumbo lifts seen previously.

The short-term interest rate market continues to price in a 50 bp bump up at the December Fed gathering. This hasn’t changed from prior to the last meeting.

Nonetheless, the market interpreted the minutes as a dovish tilt and the US dollar followed long-end Treasury yields lower.

Across the ditch, the Reserve Bank of New Zealand (RBNZ) re-accelerated their rate hiking program, adding 75 bp to their official cash rate (OCR) last Tuesday, which is now 4.25%. They had been consistently lifting by 50 bp previously.

Their action followed a surge in inflation, with the latest print coming in at 7.2% year-on-year to the end of the third quarter. The bank has an inflation target band of 1-3%.

In contrast, the Reserve Bank of Australia have pared back their hawkishness. They raised the cash rate by only 25 bp at the October and November monetary policy meetings to get to 2.85% currently.

This is instead of 50 bp that they had been doing in June, July, August and September. The latest inflation data showed an acceleration to the end of the third quarter. The RBA is now dealing with 7.3% year-on-year price pressures. The bank has an inflation target band of 2-3%.

The relative dovishness from the RBA compared to the RBNZ has seen AUD/NZD slide to an eight-month low.

The RBA appear to be comfortable that they have inflation under control. The Fed had similar thoughts through to the end of 2021 and are staring at a “Volcker-style solution” where the economy has to be slowed significantly in order to contain inflation.

In the week ahead, the Australian Bureau of Statistics (ABS) will release their first monthly CPI number. There will be two such release between the quarterly figures. This print will cover 62-73% of the weighted quarterly basket.

AUD/USD – AUD/NZD – NZD/USD

Source: TradingView

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. Please see important Research Disclaimer.

Please also note that the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

Start trading forex today

Trade the largest and most volatile financial market in the world.

  • Spreads start at just 0.6 points on EUR/USD
  • Analyse market movements with our essential selection of charts
  • Speculate from a range of platforms, including on mobile

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Tuesday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.