The Australian Dollar has endured a miserable couple of years against its big brother from the United States. Weakness has continued into 2024 so far.
As we head into a new quarter, however, the US Federal Reserve remains quite sure that interest rates will start to come down this year. This has taken a predictable toll on the greenback and seen riskier,-fighting peaks. While the next move there might be a cut too, the Reserve Bank of Australia will need to be a lot more certain that inflation will return to its target range before it acts.
There are also some signs that relations between Australia and major trading partner China are thawing somewhat. Even so there are probably limits to this newfound chumminess thanks in part to Australia’ participation in the controversial ‘AUKUS’ defense arrangement with the United States and Britian, which China hates.Still, the prospect of a weaker Dollar and a less risk-averse market backdrop should support the Aussie now.
There are clear risks to this view, however. The path lower for US rates might be longer than the market now hopes, while conflicts in Ukraine and Gaza retain the sad potential to snuff out risk appetite at any point, even if no other flashpoint ignites. It’s worth noting too that the currency is in a longer-term downtrend against the US Dollar which goes back to early 2021. Even if rises are seen this year, they seem unlikely to reverse that.
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