Aussie Under Pressure As Rates Gap Shrinks

U.S. rates likely to be higher than Australia’s soon, short AUD/USD?

U.S. interest rates may overtake Australia interest rates for the 5th time in history in the next 6 months. How will it impact AUD/USD? 

  • If U.S. Fed continues to lift the Fed funds rate, the Australia-S. official interest rates differential will eventually move into negative territory. The current differential is positive 25 basis points. 

  • In the past, a negative Australia-S. interest rates differential has put considerable downward pressure on AUD/USD. 

  • Even if the dollar index is unlikely to appreciate much without the delivery of U.S. company tax cuts, AUD/USD could still fall below December 2016 level of 0.7160. 

  • China growth slowing down has become more inevitable, which could further encourage RBA to maintain loose policy and pressure Aussie lower.

FED

Fullerton Markets Research Team

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