Scan to Download ios&Android APP

Will the Australian dollar (AUD) see a drop soon?

13:07, 4 April 2022

Share this article
In this article:
  • AUD/USD

    0.68822 USD
    -0.00249 -0.360%

Have a confidential tip for our reporters?

The Reserve Bank of Australia signage on its headquarters
Will the Reserve Bank of Australia start hiking rates soon, or will it continue its present ‘wait and see’ game? – Photo: Shutterstock

After falling marginally from its five-month high versus the US dollar at the end of last week, the Australian dollar (AUD) gained again on Monday (April 4) on the back of strong economic data, rising inflation expectations and continuing strength in commodity prices. 

The AUD/USD exchange rate rose to 0.7522 during intra-day trading on Monday before closing at 0.7509, 0.14% higher than the previous close. 

Last week, data from real-estate consultancy firm CoreLogic (CLGX) showed that house prices in Australia continued to grow, although these have slowed significantly to 16.3% year-on-year in March.

Similarly, data released by the Australia and New Zealand Banking Group (ANZ) showed that Australian job advertisements had risen by 0.4% month-on-month, indicating strong employment gains that could add pressure to wages growth. 

Aggressive rate hikes on the cards

Markets have already started to price in aggressive interest-rate hikes by the Reserve Bank of Australia (RBA) from June, even though the central bank itself has yet to move from its dovish stance of remaining “patient” before it hikes rates. 

With the central bank set to meet on Tuesday (April 5), the Australian dollar (AUD) – commonly known as the Aussie – may see a fall according to experts if it sticks to its stance of waiting patiently. 

Sydney-based bank and financial services adviser Westpac expects the RBA to continue to remain patient and does not expect any change in its stance till August. 

Economists divided on RBA’s position

Sean Callow, senior currency strategist at Westpac, said in a note: “Westpac’s view is for no change until August. If the word ‘patient’ is removed, market pricing for a hike in June, for example, will become even more aggressive.

“Even ahead of the meeting, market pricing is for a cash rate of 1.8% by December 2022 – a long way from Westpac’s 0.75% forecast. Perhaps a surprise from the RBA will knock the AUD/USD pair from its multi-day orbit of 0.7500.”

Others, however, expect the RBA to raise rates aggressively from June, which will further fuel the Aussie’s strength. 

What is your sentiment on AUD/USD?

0.68822
Bullish
or
Bearish
Vote to see Traders sentiment!

Marcel Thieliant, senior Australia, New Zealand and Japan economist at Capital Economics, said: “Most of the measures of inflation expectations that the RBA is tracking have risen to multi-year highs. Admittedly, this doesn’t seem to have any immediate implications yet.

“While union officials’ inflation expectations have picked up, the average annualised wage increase in newly approved enterprise-bargaining agreements was 2.7% in Q4 – a touch slower than the 2.8% average in the five years before the pandemic.

“We still expect the Bank to refrain from tightening policy in May, when federal elections are held… Once the election and any decisions about the bond-purchase programme are out of the way, we expect the Bank to start hiking in June.” 

 

Read more

 

The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

Still looking for a broker you can trust?


Join the 400.000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account

2. Make your first deposit

3. You’re all set. Start trading