AUD/USD Monthly Fundamental Forecast – November 2015

Outlook and Recommendation

The AUD/USD gained 61 points during the last trading session to come off of monthly lows and close at 0.7136. Traders are looking forward to the Reserve Bank meeting the first week of the month. The Australian Dollar edged lower for a third consecutive week against its US counterpart as a disappointing third-quarter CPI reading revived interest rate cut speculation while a hawkish FOMC statement amplified policy divergence headwinds by reviving talk of Fed tightening in December. Both themes will be on full display in the week ahead as the RBA issues its rate decision and top-tier US economic data comes across the wires.

China will witness economic slowdown to 6.5% from 7% in 2016-2020, as indicated by two-thirds of 16 Bloomberg economists surveyed. At the same time, a quite unexpected link is presented as the main argument that the AUD/USD downtrend will continue: the aussie has dipped 16% against the greenback since the PBoC started its monetary expansion cycle. It is alleged that the PBoC is provoking RBA to take active measures; this is playing a role in the falling AUD/USD prices.

OIS pricing implies traders see a 48 percent probability of a 25 basis point RBA interest rate cut. This means that volatility is likely regardless of what the central bank decides to do since a sizable contingent of investors will end up on the wrong side and be forced to readjust portfolios.

Options markets point to a negative positioning skew however, with traders willing to pay a premium for the right to sell the Aussie against all of its major counterparts compared with a right to buy it. On balance, that hints that upside follow-through may be greater on the upside in the event of a hawkish result versus the alternative.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks.

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