Forming positions in AUD/USD depending on the release of data on US inflation


The Australian dollar was enthusiastic about the information that Donald Trump had relieved the Green Continent from import duties on steel and aluminum, thus placing it in the same rank with Mexico and Canada. However, Mexico and Ottawa are required to make concessions on NAFTA, so the grace period may end very soon. But Canberra is out of the pool. Not that there is nothing to take from it, there is simply no point in doing so. The US trade with Australia is in a surplus, so why disturb the peaceful sleep of a partner?

As a result, the Green Continent can exhale: if US duties for net exports were added to its GDP slowed down in the fourth quarter by 0.4 pp, the acceleration of the economy in 2018 could not be even dreamed of. And the RBA continues to predict that this will happen, which allows the derivatives market to hope for an increase in the cash rate in December this year and / or in February next year.

Dynamics of foreign trade and GDP of Australia


Source: Bloomberg.


The expectations of the start of monetary policy normalization tend to strengthen the national currency, which was clearly seen in the euro in 2017-2018 and in the yen in 2018. And against the backdrop of export and inflation problems, it is logical that the Reserve Bank is trying to cut such talks at the root. In its view, regulators from other developed countries are emerging from the monetary stimulus that was used to restore their economies after the recession of 2008. Australia has managed to avoid recession due to strong Chinese demand for its goods and services, so it is too early to raise the cash rate.

Such an outlook of the RBA keeps the rates of the debt market of the Green Continent and changes the yield differential of its bonds with American counterparts in favor of the US dollar. According to Westpac, the difference between the federal funds rate and the Australian cash rate by the end of 2018 will be 63 bp, and by the end of 2019 - 112 bp.

Dynamics of AUD/USD and yield spread of bonds of Australia and the USA

Source: Bloomberg.


At first glance, the divergence in the monetary policy of the RBA and the Fed will sooner or later lower the AUD/USD quotes below 0.7. However, in fact, given the near end of the US economic cycle and the rumors about the normalization of monetary policy in Australia, this factor may not work. Moreover, in the second half of 2018, the increase in the probability of the cash rate raise is able to turn the Aussie into the main favorite of the G10. Meanwhile, it continues to be sensitive to the global appetite for risk, which is indicated by American stock indices.

Dynamics of AUD/USD and Dow Jones Index

Source: Trading Economics.


The use of this connection allowed traders to form long positions in AUD/USD from the levels 0.774 and 0.78 at the beginning of the second decade of February.  However, the release of data on inflation in the US in February can change the alignment of forces. Sluggish dynamics of the basic indicator and consumer prices will help continue the rally of the Australian dollar in the direction of 0.805-0.81;  their acceleration, vice versa, will allow the pair to form a consolidation range at 0.77-0.79.


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