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Andro Matugas-Barnes
Nov 15 2018

Currency Market - a TAT FX & Foresight view

News & Insights
Currency Market - a TAT FX & Foresight view
<blockquote> <p>The AUD is looking to escape the grasps of a bearish trend that we have seen throughout this year: with&nbsp;the assistance of the weakening Greenback, and also what looks to be seen as a positive statement from RBA yesterday morning.&nbsp;</p> </blockquote> <p>The Australian Dollar had fallen more than 9% against the U.S. Dollar during the 10 months to the&nbsp;beginning of November -&nbsp;thanks to Reserve Bank of Australia interest rate policy, events then saw the currency correct higher.&nbsp;</p> <p>A glimpse of a recovery in commodity prices and supportive global environment has pushed the&nbsp;AUD/USD back to the 0.72s.</p> <p>It goes almost without saying the RBA held its cash rate at a record low of 1.5% again in November,&nbsp;citing below-target inflation. The bank wants to see the consumer price index rise sustainably above 2%&nbsp;before raising interest rates.&nbsp;</p> <p>According to the RBA Governor, steady improvement in the economy and continued falls in&nbsp;unemployment will eventually lead to faster wage growth, which should also help lift inflation back within the 2% to 3% target band.&nbsp;</p> <p>Australian inflation has spent most of the last five years below 2%, necessitating a steady pace of&nbsp;interest rate cuts to support the economy, which culminated in rates being cut to a record low in August 2016.</p> <ul> <li><strong>AUD/USD</strong></li> </ul> <p>The AUD/USD rate was quoted 0.30% higher at 0.7232 during early trading Tuesday - the 6th, while the Pound-to-Aussie rate was down 0.25% at 1.8059. The Aussie was higher against all other G10 currencies for the&nbsp;session too.</p> <p>A daily close above the 0.7244 level would mean the Australian Dollar&#39;s 2018 downtrend has been broken&nbsp;in a decisive manner, which could enable the current correction to extend all the way back up to 0.7474.</p> <blockquote> <p>Foresight&nbsp;models continue to be more bearish then sell-side (smart-estimate) for AUD/USD. The&nbsp;projected rates are closer to 0.69-0.70 (~-0.8% to -3.2%) over the coming 12 months. Foresight&nbsp;projects over the 3 month period have very high accuracy, for instance the correlation between actual and forecast is over 90%.</p> <p>Foresight&nbsp;Analysis:&nbsp;<strong>AUD/USD - bearish -0.8% to -3.2%</strong></p> </blockquote> <ul> <li><strong>AUD/EUR</strong></li> </ul> <p>Despite continued tensions between Italy and the European Commission over budget negotiations, the&nbsp;EUR managed to crawl back most of its earlier session losses, ensuring only a modest decline against the&nbsp;AUD.</p> <blockquote> <p>Foresight&nbsp;Analysis:&nbsp;<strong>AUD/EUR - flat outlook</strong></p> </blockquote> <p><strong><img alt="" src=" " /></strong></p> <ul> <li><strong>AUD/GBP&nbsp;</strong></li> </ul> <p>The one exception to the broader trend was the GBP, which continued to rally on speculation of an&nbsp;imminent Brexit breakthrough. As long as the UK economy continues to hold up in the face of increasing&nbsp;Brexit uncertainty and political worries, this should encourage the GBP to return to a stronger footing.&nbsp;</p> <blockquote> <p>Foresight&nbsp;Analysis:&nbsp;<strong>AUD/GBP - slightly bullish 0.5% to 1.7%</strong></p> </blockquote> <p><strong><img alt="" src=" " /></strong></p> <ul> <li><strong>AUD/CNY</strong></li> </ul> <p>The AUD strength continues into early November, but whether or not this period of appreciation can&nbsp;continue, might actually be closely tied to the fortunes of CNY, where the outlook remains shaky.<br /> At present, a notable improvement in global investor sentiment has lifted Chinese stocks, the CNY and&nbsp;the AUD.</p> <p>China is Australia&#39;s biggest export market;&nbsp;a stronger RMB increases Chinese corporate buying power, and makes Australian exports more affordable. This in turn increases import demand in China, bidding&nbsp;up AUD in the process. How long will it last, is the question!</p> <blockquote> <p>Foresight&nbsp;Analysis:&nbsp;<strong>AUD/CNY - bearish</strong></p> </blockquote> <p><strong><img alt="" src=" " /></strong></p> <ul> <li><strong>AUD/INR</strong></li> </ul> <p>Rupee has fallen in value, due to a widening current account deficit. The main culprit of this is&nbsp;the rise in oil prices over the past several months. India is a large importer of oil, and a higher oil<br /> price is a big negative for its current account. The worsening current account deficit has led to&nbsp;the rupee selling off strongly.</p> <p>The Indian government has&nbsp;been taking action by restricting imports of non-essential goods, such as&nbsp;gold, and also allowing banks to raise debt capital from overseas. Yet, it has still continued to fall, and with&nbsp;the RBI keeping rates on hold at 6.5%, it will continue to put downward pressure on the INR.</p> <blockquote> <p>Foresight&nbsp;Analysis:&nbsp;<strong>AUD/INR - bullish</strong></p> </blockquote> <p><strong><img alt="" src=" " /></strong></p> <p><strong>Major events/data this month:&nbsp;</strong></p> <p><strong>&rArr;&nbsp;</strong>Thursday 8, 2018</p> <p>Feds Monetary Policy Statement - United States&nbsp;</p> <p>Fed Interest Rate Decision - United States&nbsp;</p> <p><strong>&rArr;&nbsp;</strong>Friday 9, 2018</p> <p>RBA Monetary Policy Statement - Australia</p> <p>Gross Domestic Product (QoQ/MoM) - United Kingdom&nbsp;</p> <p><strong>&rArr;&nbsp;</strong>Wednesday 14, 2018</p> <p>Gross Domestic Product (QoQ) - Germany&nbsp;</p> <p>Core Consumer Price Index (YoY) - United Kingdom&nbsp;</p> <p>Consumer Price Index (YoY) - United Kingdom&nbsp;</p> <p>Gross Domestic Product s.a. (QoQ/YoY) - European Monetary&nbsp;Union</p> <p>Consumer Price Index Ex Food &amp;&nbsp;Energy (YoY) United States&nbsp;</p> <p><strong>&rArr;&nbsp;</strong>Thursday 15, 2018</p> <p>Employment Change s.a. Australia&nbsp;</p> <p>Participation Rate - Australia&nbsp;</p> <p>Unemployment Rate s.a. - Australia&nbsp;</p> <p>Retail Sales control group - United States&nbsp;</p> <p>Retail Sales ex Autos (MoM) - United States&nbsp;</p> <p><strong>&rArr;&nbsp;</strong>Friday 16, 2018</p> <p>Consumer Price Index - (YoY) / Core (YoY) - European Monetary&nbsp;Union</p> <p><strong>&rArr;&nbsp;</strong>Tuesday 20, 2018</p> <p>RBA Meetings Minutes - Australia&nbsp;&nbsp;</p> <p>BoJ Monetary Policy Statement - Japan</p> <p><strong>&rArr;&nbsp;</strong>Thursday 22, 2018</p> <p>ECB Monetary Policy Meeting Accounts - European Monetary&nbsp;Union</p> <p><strong>&rArr;&nbsp;</strong>Friday 23, 2018</p> <p>Retail Sales (MoM) - Canada&nbsp;</p> <p>Consumer Price Index (YoY/MoM) - Canada&nbsp;</p> <p>Bank of Canada Consumer Price Index Core (YoY/MoM) - Canada&nbsp;</p> <p><strong>&rArr;&nbsp;</strong>Wednesday 28, 2018</p> <p>Gross Domestic Product Annualized - United States&nbsp;</p> <p>Core Personal Consumption Expenditures (QoQ) - United States&nbsp;</p> <p><strong>&rArr;&nbsp;</strong>Thursday 29, 2018</p> <p>Core Personal Consumption Expenditure - Price Index (YoY) - United States&nbsp;</p> <p>FOMC Minutes - United States</p> <p>Tokyo CPI ex Fresh Food (YoY) - Japan&nbsp;</p> <p><strong>&rArr;&nbsp;</strong>Friday 30, 2018</p> <p>Consumer Price Index - Core (YoY) - European Monetary&nbsp;Union</p> <p>Consumer Price Index (YoY) - European Monetary&nbsp;Union</p> <p><strong>Find more about the&nbsp;Foresight <a href=" currency market review-Nov2018.pdf" target="_blank">Currency Market review</a> &amp;&nbsp;</strong><strong><a href=" fx report_30.09.2018.pdf" target="_blank">FX 30 Sep 18 Report</a>.</strong></p> <p>Download as pdf:</p> [embeddoc url=" Market a TAT FX Foresight view.pdf" viewer="google"]

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