After a tight trading session in the first week of October, the Aussie found a breather and has started to climb against its rivals. In the previous sessions, the Australian dollar has been remarkable after striking a three-year high against the British pound. Nevertheless, the commodity currency still responds to the swings of the oil prices and to the expected decision of the Reserve Bank of Australia to hold rates.
Due to the strong trade link of the AUD to the commodities, the trend of the currency is greatly affected by the up and down of oil prices. At the start of the week, oil prices notched lower, but went near to the June highs amid the glut supply sentiment. During that time, the Aussie dropped against the U.S. dollar from 0.76663 to 0.76132.
In the mid of the week, oil prices regained the $50 level and the Australian currency ticked higher to 0.76326 as well. The decline in the commodity prices reflects on the Australian economy, and later on the impact will be extended in the currency. Australia happens to be a net importer of oil and it’s the energy industry, which drives growth in the country.
Technically, lower oil prices sound positive for the consumers, however, a long term drop could damage the biggest oil companies.
Benchmark Interest Rate
Not far from the market expectation, the Reserve Bank of Australia cut its interest rate twice this year to a record low of 1.5 percent. The lower interest rate can cause currency depreciation. Since the Aussie has been juggling with low rates for the past few months, the decision of the bank did not leave a major impact.
The risk involved here is the huge tendency that the Federal Reserve will finally implement a rate hike this December. As the next meeting of the US central bank approaches, more members of the committee have been releasing hawkish comments. In case, a rate hike is applied, then the U.S. dollar will definitely move upward, making it hard for its rivals to appreciate.
Thus, amid these market uncertainties, the Aussie and other currencies will have to deal with the monetary policy decisions of their respective central banks. Apparently, the financial market is flooded with negative and lower interest rates alongside with the struggling path of the emerging economies.
During the mid-session on Friday, GBP/AUD was down to 1.62509 after the slight recovery at 1.6679 at the start of the day. The British pound was still hit by a Hard Brexit as the government authorities opened up the negotiations over the total exit of Britain from the European Union. The pair opened at 1.64083 and settled at 1.62734 with a total volume of 21187. As seen in the image below, the pair went beyond the lower barrier. With this, there’s a reasonable chance for a buying opportunity and since it still away from the moving average of 1.66332, then the trend has not yet ended. Aussie will keep on trading higher against the British pound.
The next chart shows the trend of AUD/USD. Clearly the Australian dollar changed higher than the greenback after opening at 0.75651 and closing at 0.75703. With a total daily traded volume of 5772, the pair had an intraday high of 0.75855 and an intraday low of 0.75592. The pair has surpassed the lower barrier, afterwards the green candle appeared and went beyond the moving average of 0.7603. This means that the previous downtrend is ending and expect for a green candle in the rest of the session.
Elsewhere, a significant price increase is probable as AUD/NZD goes beyond the upper barrier of the band. The commodity currencies have been in a remarkable recovery from 1.05173 in the mid of the week to 1.06220 during the late session on Thursday. Amid the bearish outlook for the pair, the trend remained moderately higher with an intraday high of 1.06279 and an intraday low of 1.05745. Although the Aussie trades higher against the kiwi, there could be a pause in the continuous uptrend as the candle stays above the upper band.
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