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The AUD is struggling to make headway against a strong USD, but some involved in forex believe the current weakness is unlikely to be sustained in the long-term. On December 7, after opening at 0.7604 against the USD, it soon lost ground, eventually closing at 0.7563, a loss of 0.54%. The AUD lost even more ground against the JPY, closing at 84.84, a loss of 0.9%.

The Australian dollar first went into reverse back in September, following a two-year high. In September, the AUD fell 0.05% against the USD, 0.39% against the EUR, and 0.21% against the JPY, closing the session at 0.8058. Since then, it has been stuck in a spiralling slump.

Weak Commodity Prices

Back then, as now, the Australian dollar is being hit hard by weakening commodity prices in London and China. Iron ore is Australia’s biggest export in terms of value and falling futures prices in China hit the AUD. Weak consumer spending is having an effect, too. Australians are tightening their belts in a way not seen since 2008.

Strong USD

A strong USD is impacting on the value of the Australian dollar. The greenback is benefiting from intense speculation over US tax reforms and better than expected ADP National Employment figures. Meanwhile, in Europe, the GBP has gained ground after positive developments on the Brexit front, as it becomes more likely that the UK will have a soft Brexit, but with uncertainty still rife, the Aussie dollar did regain some ground against the GBP at closing.

ABS Trade Figures

Analysts believe that movements in commodity prices and technical data will play an increasing role in which way the AUD takes. Trade figures are less important these days and the AUD is no longer quite as sensitive to negative trade figures, but they do still play a part in which way the AUD moves. The Australian Bureau of Statistics is set to release its International Trade Report shortly, which is expected to show a surplus of $1.4 billion; below the previous forecast of $1.745 billion. This will undoubtedly have an effect on the AUD.

Other events on the economic calendar that could have a negative effect on the AUD include China’s monthly FX reserves data for November, UK house price index data, German manufacturing data, and Q3 GDP data from the Eurozone.

Will the AUD Fall Further?

A few months back, there was increasing speculation that the Reserve Bank of Australia would tighten its monetary policy settings to rein in house prices and consumer lending, but with a weakening Australian dollar, this is now very unlikely.

With the USD gaining ground on the back of strong employment figures and expectations of higher U.S. interest rates, an “overvalued” AUD is falling behind. Currency strategies are predicting further rises in the US dollar, which will come at the expense of the AUD. If Australian economic shows signs of improvement in the first quarter of 2018, the Reserve Bank of Australia could hike the cash rate up from the current rate of 1.5%, which would help a depreciating AUD. 



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