Fundamental Australian Dollar Forecast: Neutral

• AUD/USD has been falling all year
• It now seems to have settled into a broad range
• This range is likely to hold on, barring massive data shocks

The Australian Dollar has suffered grievously against the US Dollar for most of this year, but may be at last finding a floor.

This does not mean that AUD/USD will sink no lower, but it may just mean that the worst of its hammering is now behind it. Of course, that hammering was dealt largely by the huge gulf in interest-rate expectations between Australia and the United States. The Federal Reserve is already well into its withdrawal of post-crisis monetary accommodation and intent on much more. Of course, it provided far more of this than the Reserve Bank of Australia anyway, but the RBA’s Official Cash Rate remains stuck at its 1.5% record low and isn’t predicted to rise at all until well into next year.

Those interest-rate differentials still yawn in the greenback’s favor then.

But, AUD/USD has now fallen from over 80 US cents to around 73. So most of that gulf is now in the price. In any case, AUD/USD has settled into a broad trading range since mid-June, between 0.7311 and 0.7443. The bears seem sated, at least for the moment.

The coming week is unlikely to see them back for more. It’s not short of economic clues. Investors will know more about Australian business and consumer confidence by the time we hit Friday. They’ll also get a look at how China is weathering all those seemingly endless trade-spat headlines. The Australian Dollar can sometimes act as the markets’ favorite liquid China proxy thanks to Australia’s vast raw-material export machine, and may well do so when Chinese trade numbers are released.

Of course, even if all those releases impress, the US economic numbers might come in strongly too, and take some wind out of Aussie bulls.

But they seem unlikely to increase already bullish Fed rate expectations by much. So on the basis that the AUD/USD range will probably endure, it’s a neutral call this week.

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