Where Is The Aussie Heading Next?

It could be suggested that the AUD/USD has encountered a round of volatility so far this week. A dovish Reserve Bank of Australia (RBA) Monetary Policy Statement in the early hours of Tuesday morning expressing that an overvalued domestic currency was hindering Australia’s economic transition away from mining investment, led to a subsequent near 60 pip decline in the Aussie.

The pair has since recovered losses and even posted additional gains, albeit in a delayed manner. Following the Wednesday morning Australian GDP release, there appeared to be some initial unease from investors to purchase the Aussie. This was likely linked to the RBA’s previous warnings from as far back as April proving to be somewhat accurate. Back then, the Central Bank surprised with an announcement that Australia was set to enter a weaker period of economic growth. Quarterly economic growth in Q2 was 0.5%, in contrast with 1.1% in Q1.

However, annualized economic growth was recorded at 3.1% with GDP expansion beyond 3% considered robust for a developed economy. Although it was a delayed reaction, investors clearly looked favorably on the annualised statistics and resulted in Aussie appreciation as Wednesday’s trading progressed.

There was more positive news from Australia overnight, with retail sales expanding by 0.4% on a monthly basis in August. This increased optimism that the Australian economy can still build up a domestic reliance, while dispelling concerns that the latest Australian unemployment rate being announced at a decade high might lead to a decline in domestic expenditure.

Despite this, there are now signs of profit taking place among investors.

Thursday’s Aussie decline is perhaps due to an acceptance that the RBA will continue to attempt to devalue the AUD. Nonetheless until we see consistently alarmingly weak economic data from Australia, such another employment report, it is going to be difficult for investors to accept that the significant drop in the AUD that Governor Stevens has warned about is forthcoming.

In the meantime, there looks to be a heightened likelihood that the Aussie will continue to consolidate between the 0.9380 and 0.9238 range that has been teased since the beginning of August.



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