Rally may continue with the Aussie dollar

Andrew Masters FIBO Group

The Australian dollar is taking a breather in today’s trading after rising tremendously last week and some say that there may be more gains ahead this week.

The local currency is now above US78c, sitting at a 2 year high against its US counterpart and some predict that there may be some further gains in the weeks ahead.

The reason for last week’s gains was a dovish speech by US Federal Reserve bank president Janet Yellen that left the market predicting that no more rate rises in the US would occur this year.

Also helping the Aussie dollar is expectations that the RBA will have to raise interest rates in the nearest future to keep in line with other countries such as Canada, which lifted interest rates last week.

Interest rates are a very sensitive subject for the RBA and is a double-edged sword.

If they lift rates they are in danger of derailing the fragile recovery happening at the moment in the Australian economy and if they leave rates unchanged or reduce them the property market will continue overheating which will end up a disaster for the economy.

"The RBA is likely to be quite annoyed at the rebound in the Australian dollar, which it would continue to regard as unhelpful for our economic transition," noted BetaShares Capital chief economist David Bassanese

"It seems the market at this stage simply does not believe the RBA will remain neutral, with tightening expectations over the coming year continuing to build,” he added.

The driver of the Australian dollar this week will be the release of the minutes meeting from the RBA where investors will be looking for clues on the direction of interest rates as well as Thursday’s unemployment rate and job participation figures.

Author

Andrew Masters

FIBO Group

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