Some currencies are managing to stage a recovery of sorts against the US dollar. The Aussie is not one of them. As we near the highly anticipated decision by the Federal Reserve, AUD/USD seems a good candidate to set new lows, on whatever outcome.
As in the case of the euro, the reason lies in monetary policy divergence.
The minutes of the RBA’s meeting minutes showed that the decision not to cut the rates in March was a close call. The members wanted to see a bit more data. They did consider a cut. The wording was that they “were of the view that a case to ease policy further might emerge”.
In the past, RBA governor Stevens talked about 0.75 as a reasonable level for AUD/USD. We are not too far from that level. So, the members did see the weaker currency as helping the economy, but they still see it as overvalued.
And what about the housing market? One of the reasons not to cut was the booming (if not bubbly) housing market in Sydney. Well, they do mention Sydney, but relate to Melbourne as “solid” and “muted” elsewhere. In addition, they are working with other regulators to contain risks from housing. Could macro-prudential tools be adopted to curb housing while rates are cut?
All in all, the minutes certainly lean lower, and so does the currency.
At the time of writing, AUD/USD trades at around 0.7615. It is one range above the very low one at the 0.75 handle. Support comes in just above 0.76, and the bottom of the barrel is at 0.755.
On the upside, we find 0.7675 and 0.7715. The recovery seems to be nearing an end.
Chief Analyst at FXStreet Valeria Bednarik and I will be covering the Fed decision on Wednesday, March 18th, from 17:45 GMT. It will be broadcast live on Forex Crunch and on FXStreet.
Here is our trailer and the chart is below:
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