Aussie keeps abreast. Forecast as of 27.07.2023

2023.07.27 2023.07.27
Aussie keeps abreast. Forecast as of 27.07.2023

Dmitri Demidenkohttps://www.litefinance.org/blog/authors/dmitri-demidenko/

Mixed reports on the Australian domestic data haven’t helped to determine the further AUDUSD trend. However, the Fed created a favorable background for the bulls. Will buyers go ahead? Let us discuss the Forex outlook and make up an AUDUSD trading plan.

Monthly Australian dollar fundamental analysis

The Australian dollar jumps up and down. Australia’s strong jobs data and a budget surplus than originally expected cheered up the AUDUSD bulls. However, the firm intention of the RBA to hold rates flat and slow inflation, on the contrary, discourages them. Still, the AUD is rising.

Australia is no different from other advanced economies. Just like anywhere else, the labor market remains resilient to aggressive monetary tightening, and disinflation is underway. One of the reasons is the economy’s lower sensitivity to rate hikes. These trends are based on consumer orientation towards fixed-rate mortgages. However, sooner or later, a 400-basis-point rise in the cash rate since the beginning of the cycle should have an effect. Based on the minutes of the Reserve Bank July meeting, the process has already begun.

The proof is the slowdown in CPI to 6% and core inflation to 5.9% in the second quarter. The figures were lower than expected by Bloomberg experts, which dropped the chances of a rate hike from 4.1% to 4.35% in August from more than 50% after the jobs report, first to 31% and then to 20%. The market does not believe in the continuation of the RBA monetary tightening cycle, which puts pressure on the AUDUSD.

Dynamics of Australian inflation

Source: Bloomberg.

At the same time, the strength of Australia’s economy, the unemployment rate of 3.4%-3.7%, the lowest since June 2022, and employment growth of +32.600 in June, more than twice the forecasts of Bloomberg experts retain the risks of inflation growth to a new high. The RBA should keep abreast, which does not rule out a rate hike after the pause. This has already happened in the current cycle, which sent the AUDUSD up.

In late July, the Aussie is rising amid a favorable foreign environment. The US dollar is weakening. Based on disinflation in the USA, investors believed in the end of the Fed’s monetary tightening cycle, followed by a rate cut. The worse the US data comes out, the more talks about a Fed’s dovish shift. At the same time, the combination of sluggish economic growth and sharply slowing inflation creates an ideal environment for risky assets, including the Australian dollar.

AUDUSD is supported by the yuan strengthening, as well as a slow but steady rise in prices for iron ore, a key component of Australian exports, by 12% from the levels of the May low. Although Chinese domestic data more often disappoint than please, the IMF does not lower its forecast for its GDP for 2023-2024. The organization expects that the recovery of the Chinese economy will accelerate, supporting the Aussie.

IMF projections

Source: Bloomberg.

Monthly AUDUSD trading plan

One could consider the AUDUSD longs on the corrections. The targets of 0.69 and 0.71 are still relevant.

Price chart of AUDUSD in real time mode