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Saturday, October 16, 2021

Australian Dollar

As the Fed moves to cuts, the battle will now be joined with the RBA. We’ll need more stock market noise for the Fed to shift quickly to cuts but they are on the way, and the reserve bank of Australia looks its usual confused self around the Aussie outlook and which levers to pull, prudential or cash rate. This is made all the worse by the major bank’s campaign at the Australian financial review to prevent rate cuts in preference for regulator authority cuts and fiscal spending, and it also appears Q1 will be OK thanks to the fiscal pump.

No sharp recovery is to be seen in either local property or the economy regardless as the external environment worsens, more of a grinding bottom in part because the Australian reserve will take too long to ease enough.  The good news for AUD bears is that that stubbornness will end in the Bank having ultimately to cut the cash rate even lower. But in the meantime the Fed will have out the chainsaw.

Iron ore should steadily fall away from here, the trade war plus a probable soft yuan will also weigh on the Battler, and if markets really begin to choke then the AUD will still likely buckle. But a self-defeating higher short term AUD directly into that global trade shock is now a plausible scenario.

Ivy Heffernan
Ivy Heffernan, student of Economics at Buckingham University. Junior Analyst at HeffX and experienced marketing director.

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