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Today, only Australia and Japan are considering raising interest rates among the G10 countries. If inflation stabilizes in Australia in the second quarter, the Australian dollar could become the most popular currency in the Forex market. Let’s discuss this topic and make a trading plan for it Australian dollar versus US dollar.
Monthly fundamental forecast for the Australian dollar
Most likely, the Fed is bluffing when it says it will cut interest rates only once in 2024. Meanwhile, the question is: Is the RBA misleading markets by signaling that it will increase cash rates in response to slow progress in monetary policy? Slowing inflation? Markets don’t believe it yet, but they are starting to doubt: after the June meeting, the odds of the RBA resuming its monetary tightening cycle in August rose from almost zero to 20%. Against this background, Australian dollar versus US dollar The pair recorded significant gains.
The Reserve Bank of Australia kept interest rates at a 12-year high of 4.35% for the fifth meeting in a row. However, markets saw her speech as hawkish, as evidenced by their reaction: Bond yields jumped after Michelle Bullock’s speech, in contrast to previous meetings, when they often fell.
Australian bond yields change after Reserve Bank of Australia meetings
Source: Bloomberg.
Bullock noted that raising interest rates was on the agenda, but the regulator preferred to remain vigilant on inflation. If we compare the accompanying statements, hard-line rhetoric becomes more widespread in official statements. In particular, the RBA described inflation as above target in June compared to high inflation in May. Michelle Bullock believes consumer prices are showing evidence of resilience. At the previous meeting, talk was that CPIs were falling more slowly than expected.
The decline in inflation in Australia is slower than in other advanced economies around the world, which may be due to the Reserve Bank’s previous timidity in the monetary tightening cycle. It has raised interest rates less than other central banks, making the economy more resilient to monetary constraints. This makes the RBA expect the cycle and support to resume Australian dollar versus US dollar.
Inflation rates in different countries and regions
Source: Bloomberg.
Only Australia and Japan are considering raising interest rates among the G10 countries, while the rest of the countries are planning to lower or reduce interest rates. In theory, the divergence should support the Australian dollar and the yen, but the Bank of Japan is normalizing its monetary policy too slowly, and the yield gap is too wide to strengthen the Japanese currency. However, this is not the case with the Australian.
If the Reserve Bank of Australia resumes the cycle of monetary restrictions, the Australian dollar could become a leader in the forex market. The basic condition for achieving this is stabilization of inflation in the second quarter, which will be the subject of the July 31 report. A few days later, the Reserve Bank meeting will be held from August 5 to 6.
It is worth mentioning that Australian dollar versus US dollar The rally is taking place against a favorable backdrop. the Standard & Poor’s 500 The index has reached a record high for the 31st time in 2024, suggesting global risk appetite is rising, US Treasury yields are falling, and the derivatives market is calculating a two-in-three chance of a cut in the federal funds rate in September.
Monthly AUDUSD Trading Plan
The difference between the monetary policies of the Reserve Bank of Australia and the Federal Reserve allows traders to remain optimistic. the Australian dollar versus US dollar The pair may reach previously Set targets 0.675 and 0.69. Recommendation is to buy.
AUDUSD price chart in real time mode
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