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Australian Dollar Surge

The Australian Dollar is a currency that has become a preferred  instrument of traders in recent years.  After many decade of commodity success  that made the Australian Dollar to all time peak against the US Dollar, traders were repeatedly attracted by the interest rate difference in the combination.

Studies believe that the Australian Dollar will increase up until the final weeks before the US Election Day, and is expected to decline in value in the last few weeks before the US Presidential election in  November 8, 2016.

On September 1, the Australian Dollar inched higher compared to their U.S. counterpart, in spite of the release of downbeat Australian statistics, as investors stayed careful before Friday’s key employment report.

AUD/USD inched higher 0.19% to 0.7533, off the previous session’s one month decline of 0.7487.

In the second quarter, the Australian Bureau of Statistics stated retail sales were flat, compared to anticipations for a 0.3%  increase and after a small increase of 0.1 percent in the three months to March.

In the last quarter, another report presented that private capital expenditure dropped by 5.4%, beyond expectations for a 4.2% decline and following a 5.2% slip in the 1st quarter.

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But, the Australian dollar establishes some support after data presented that Chinese manufacturing activity fluctuated into expansion territory the current month, with the official manufacturing purchasing manager’s index at 50.4, an increase from 49.9 in July.

Although on August 30, 2016, the Australian Dollar dollars glided lower in contrast to their U.S. counterpart on that day, in spite of the release of strong Australian building approvals statistics, as the dollar stayed largely supported by expectations for a U.S. rate hike. AUD/USD eased 0.08% to 0.7562.

In July, the Australian Bureau of Statistics stated building approvals increased by 11.3%, beating expectations for a 0.5% fall. Building approvals dropped 4.7% in June, whose figure was revised from a previously estimated 2.9% decline.

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The AUD/USD is trading steady after posting a possibly bullish closing price reversal bottom on August 29, 2016. The AUD is being supported by increased demand for higher income. The Forex pair is also being maintained by the absence of dovish statements from the RBA in spite of the lofty price level of its currency.

In addition, investors staking on a potential rate hike by the Fed in September appeared to have calmed their anticipations. They may be moving aside as they wait for additional information from Friday’s U.S. Non-Farm payrolls report.

Conclusion:

Temporarily the AUD should stay supported as latest progressive employment data proposes the RBA will not be reducing interest rates any lower this 2016, because it already made two 0.25 percent reductions in 2016.

This may remain to keep carry trade inflows high, and is consequently supportive of the Aussie.

On many instances,  the strength of the AUD largely stems from the carry trade, this is a strategy where  investors in location like the UK, Eurozone and Japan hunt the higher yields on offer in Australia.

For that reason, the Reserve Bank of Australia has been keen to reduce this driver of the AUD by reducing interest rates.

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