Home Market Aussie: is it time to surrender? Forecast as of 15.06.2022

Aussie: is it time to surrender? Forecast as of 15.06.2022


The headwind for AUDUSD is getting stronger. Global stock indices are actively declining, while Chinese data is mixed. All factors indicate the continuation of the pair’s decline, but perhaps the bulls will have the strength to fight back? Let’s discuss the topic and make up a trading plan.

Australian dollar fundamental analysis for today

The RBA’s attempt to fight despite the negative is commendable but doomed to failure. Philip Low is trying his best to curb inflation. The 2-day rally in Australian bond yields has become the fastest since 1994, while the ASX 200 outperformed the S&P 500. However, the collapse of world stock indices and falling iron ore prices are forcing the AUDUSD bulls to retreat. However, the final failure does not deprive them of hopes for local victories.

After the Australian court decided to raise the minimum wage in the country by 5.2% from July, a new series of sales began in the sovereign debt market. Investors are worried that a strong labor market, expecting a decrease in unemployment from 3.9% to 3.8% and employment to accelerate from +4 thousand to +25 thousand, will contribute to the unwinding of the inflationary spiral and push the RBA to continue the aggressive monetary policy.

Dynamics of Australian bond yields

Source: Bloomberg.

In June, the RBA surprised with an increase in the cash rate by 50 basis points. Now 19 out of 24 Bloomberg experts expect the Australian regulator to do the same in July. As a result, the main interest rate will rise to 1.35%, but this is not the limit. Goldman Sachs predicts it will rally to 2.6% by the end of 2022.

Experts’ forecasts for cash rate changes in July

Source: Bloomberg. 

In a normal environment, a hawkish RBA stance would help strengthen the AUD, as this factor helps contain inflation. Alas, the situation in the financial markets today is turbulent. After US inflation accelerated to 8.6%, panic began in the markets, bringing the number of USD opponents to zero.

The ASX 200 has fallen by 11% since the start of the year, a much smaller drop compared to the S&P 500’s 21% decline. However, this fact does not help the AUDUSD bulls. The Aussie is highly sensitive to global risk appetite. So the fact that the broad US stock index is likely has not yet reached the bottom makes the AUD vulnerable. Indeed, even with recent sales, the stock’s PE ratio is 15.8, compared to an average of 15.7 over the past 15 years. In times of crisis, investors may decide that securities are worth even less. In December 2018, during the sell-off associated with the increase in Fed rates, PE fell to 13.8. While in March 2020, when the COVID-19 pandemic began, it fell to 13.4.

The Chinese data does not support the Aussie as well. While industrial production expanded by 0.7% in May after a 2.7% contraction in April, retail sales fell by 6.7% after falling by 11.1% the previous month.

AUDUSD trading plan for today

The AUDUSD downtrend looks stable, but this does not exclude the bulls strengthening. If the Fed decides not to follow the market and raises the federal funds rate by only 50 basis points at June 14-15 meeting, the pair consolidation above 0.6925 may become the basis for entering short-term long trades.

Price chart of AUDUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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