AUD/USD Fundamental Analysis – Forecast for the week of August 15, 2016

The AUD/USD ended the week of its recent highs above the 0.77 level to enter the new week at 0.7646 but remains a strong buy moving into the new week as traders adjust to Friday’s sharp decline although China will weigh on the markets and the possibility of stimulus from the PBOC. Over the past two weeks the RBA has reduced rates 25 bps and last week the RBNZ followed with its 25bps reduction.

In his last public speech as Governor, the Reserve Bank of Australia ‘s Glenn Stevens discouraged the notion that interest rate cuts can boost the Australian economy.

Stevens said it was only natural for Australia to slow down a bit after growing above its potential in the previous years. He talked about the demand and supply factors. On the demand side, significant debt is tying households’ purse strings. He defended that he already cut the real cash rate to be 1.4 percentage points lower than in the last decade in “achieving the present trajectory of domestic demand that we have”. In other words, it will take time for Australian households to work through their balance sheets and start spending again.

Stevens also talked about the lack of a “demographic dividend”. The growth in the working population of people between 15 to 64 years is slower than the overall population growth, a problem that Japan also faces. “These factors individually are not especially large, but together they can explain why overall GDP growth has been lower in the past decade,” said Stevens.

Stevens’ speech did not move the Australian dollar. It is up 0.4% against the broadly weaker U.S. dollar, which fell with the latest U.S. productivity data as traders bet the Federal Reserve would not raise rates easily.

FxEmpire provides a wide variety of analysis on a daily, weekly and monthly basis ranging from our exceptional technical analysis as well as our in-depth fundamental analysis along with our daily news and market updates. To get the best understanding of each asset it is important to review the short term daily analysis with the longer term monthly reports. To get email notification when each of these are posted please sign up for our daily newsletter.

Upcoming Economic Events that you should be monitoring:

Government Bond Auctions