AUD/USD Fundamental Analysis October 2, 2012, Forecast

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The AUD/USD could see renewed selling pressure since the Reserve Bank of Australia is expected to cut its benchmark interest rate. It’s difficult to determine at current price levels how much of this news has already been priced into the market. Due to lower commodity prices and a drop in demand from China, the Australian economy has been sluggish. The RBA is trying to stabilize the economy by encouraging fresh demand and lower interest rates should drive down the value of the Australian Dollar, making Australian goods and services more attractive. 

While lower interest rates should weaken the Australian Dollar, demand for higher risk assets could provide some support. Therefore, the expected sell-off may not be as big as anticipated. It may even produce a choppy two-sided trade. Theoretically, the Aussie should weaken because the currency of the country cutting the rates usually falls. Since so may traders know about the rate cut, it may turn out to be a “sell the rumor, buy the fact situation”. 

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About: FX Empire Analyst - James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.

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