Australian Dollar/US Dollar Monthly Forecast

I wrote last month that "the initial bearish target is .7265." The AUDUSD fell well below there and tested .60. A 5 wave drop from the top (.9856) is evident so a correction is underway. Initial resistance is the confluence of the former 4th wave and 38.2% of .9856-.6005; at .7256. The rally from .6005 is probably a second wave, which often retrace a deep a sizeable amount of wave 1. Do not be surprised to see a rally that ends closer to the 61.8%; at .8156.

Our Australian Dollar-US Dollar fundamental forecast remains firmly to the downside, as interest rate markets predict the high-yielding Aussie will quickly lose much of its rate advantage against the lower-yielding US Dollar. The Aussie Dollar reached post-float highs on substantial strength in commodity markets and strong demand for domestic yields. Yet a recent crash in commodities and clearly bearish forecasts for the future of Reserve Bank of Australia interest rate policies leave the domestic currency in a difficult position. Given that the Australian Dollar previously rallied on its impressive rate advantage against the much lower-yielding USD and Japanese Yen, it stands to reason that lower yields will dampen enthusiasm for AUD/USD and AUD/JPY positions.

Interest rate markets now forecast that the Aussie's 500 basis point yield advantage over the US dollar will shrink by a whopping 203 bp in the coming 12 months. Our fundamental forecast for the AUD/USD subsequently remains in favor of further Aussie losses.

Australian Dollar Futures Show AUD/USD May Recover

DailyFX

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