AUD/USD Monthly Fundamental Forecast December 2012

Outlook and Recommendation

The AUD/USD remained strong throughout the month trading at 1.0427 to close the month. The pair witness a loss for the month after starting off on a high note as the USD was weak at the end of October after the introduction of QE3. The outlook is for only modest gains as record low interest rates and concerns over a peak in mining investment are offset by a gradual recovery in China and improving risk sentiment.

The Australian dollar continues to be supported by strong economic fundamentals, wide interest rate differentials between Australia and other advanced economies, and portfolio investment inflows. Inflation will likely continue to gradually climb higher in the near future (partly reflecting the introduction of a carbon tax in July 2012) from the Q3 level of 2.0% y/y; nevertheless, we expect it to remain within the Reserve Bank of Australia’s (RBA) target range of 2-3% through 2014. In the context of still-weak global economic conditions and manageable inflation prospects, the RBA cut the benchmark interest rate by 25 basis points to 3.0% on December 3rd.

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.

Central Bank Name: Reserve Bank of Australia

Date of next meeting or last meeting: December 4, 2012

Current Rate: 3.25%

Economic Highlights of the coming week that affect the AUD, JPY, NZD and USD