Australia: Competing influences - AmpGFX

Greg Gibbs, analyst at Amplifying Global FX Capital, suggests that the shift down in Australian rate expectations to some extent reflects lower US rate hike expectations in Q4. 

Key Quotes

“It does not appear that rate spreads have been a key factor in the decline in the AUD in the last year.  Its fall appears to have been more correlated with broader strength in the USD and weaker Chinese equity markets.”

“The outlook for Chinese and global equities has improved with broad policy stimulus in China, a less hawkish Fed that appears to have entered an extended pause in rates, and hopes for improved US-China trade relations as talks continue with a target date of 1-March for a trade agreement.  This has contributed to rebound in the AUD so far this year, and it may see further gains in the AUD.”

“However, domestic Australian conditions may be deteriorating with increased concern centred around an accelerating decline in the housing market.  This may weigh on Australian interest rates and yields and tend to cap the AUD exchange rate.”