Australian Dollar Fundamental Forecast: Neutral

  • Australian Dollar recovered with the S&P 500 and Shanghai Composite
  • Fed Chair Jerome Powell, PBOC liquidity boost may have helped AUD
  • Eyes turn to Fedspeak, RBA Governor Philip Lowe, US non-farm payrolls

The pro-risk Australian Dollar outperformed this past week, gaining alongside the S&P 500 and Shanghai Composite. Was it another overaction from markets in the aftermath of June’s Federal Reserve monetary policy announcement? Despite the central bank seeing a consensus for at least two rate hikes in 2023, which also implies sooner-than-anticipated asset purchase tapering, financial markets remained sanguine.

Earlier in the week, Fed Chair Jerome Powell continued to cool fears about tapering at a congressional testimony. He noted that the central bank ‘will not’ raise rates preemptively. Yet, at the end of the week, Fed Funds Futures were indicating that the markets have appeared to fully bake in one 25 basis-point rate hike by the end of next year. Still, more Fedspeak ahead could extend this market dynamic, boosting AUD.

The Australian Dollar is also likely receiving a gentle nudge from developments out of China. The People’s Bank of China unexpectedly increased short-term liquidity injections, selling about 30 billion Yuan of 7-day reverse repos versus what has been the usual 10b since March. But, these are probably part of normal sequencing for daily open market operations, especially ahead of the end of the second quarter.

Moreover, the PBOC has been normalizing. This is partly why Chinese equities have been underperforming some of their developed peers. As China is Australia’s largest trading partner, economic developments in the former can often imply knock-on impacts for the latter. Given that the 100 year anniversary of the Chinese Communist Party coming up, it won’t be too unusual to see more liquidity boosts from the PBOC.

The Australian economic docket is also fairly light ahead. RBA Governor Philip Lowe will likely be a highlight, speaking on Tuesday at a banking summit in Sydney. Though he may reiterate the central bank’s dovish stance. All eyes will turn to the next US jobs report on Friday. Keep a close eye on average hourly earnings. Better readings could imply that inflation may remain elevated, creating volatility risk.

Australian Dollar Index Versus S&P 500 Futures and the Shanghai Composite

Australian Dollar Outlook: AUD/USD, S&P 500, Chinese Stocks Rise. Fedspeak, NFPs Eyed

Chart Created Using TradingView

— Written by Daniel Dubrovsky, Strategist for

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter


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