Demand for risk-correlated currencies dipped towards the end of last week as commodity trade became mixed. While OPEC’s deal to cut oil production bolstered risk demand, it also boosted the US Dollar which kept the ‘Aussie’ limited. AUD/USD began the week above 0.74 but fell closer to 0.73 by Friday.
Australian Dollar (AUD) Limp as Iron Ore Prices Fluctuate
The Australian Dollar took a hit last week, making it difficult for the antipodean currency to hold its ground against the US Dollar despite USD facing key resistance throughout the week.
On Wednesday, OPEC detailed plans for an oil output cap deal. The group planned to cut oil production by 1.2m barrels a day in order to bolster demand and prices for the commodity.
This typically would have been a boon for commodity-correlated currencies, but Australia’s most lucrative commodity, iron ore, didn’t have quite as much luck in comparison.
After performing strongly earlier in the week and reached the key level of US$80 per tonne, the commodity plummeted as it was sold from its highs. The ‘Aussie’ saw a similar movement.
Iron ore prices continued to fall until Friday, when they suddenly jumped again. The wide fluctuations and volatility of the commodity left the Australian Dollar relatively unappealing towards the end of the week.
US Dollar (USD) Kept Afloat by Fed Rate Hike Bets
While last week’s US data was generally mixed, the US Dollar continued to see significant underlying support thanks to mid to long-term factors like Federal Reserve rate hike bets and inflationary expectations.
Bets of a December Fed rate hike spent most of the week at the impressive level of 99%, indicating that there is a near-unanimous consensus that the Federal Open Market Committee will increase the base rate on the 14
th
.
The best of the US Dollar’s bullishness from November had run out, making it more difficult for USD to sustain gains throughout the week. However, these strong support factors made advancing against the ‘Greenback’ difficult too.
AUD/USD Forecast: ‘Aussie’ Could Drive Movement Next Week
It’s worth noting that even if the Australian Dollar performs strongly next week, its advances may be limited by the significant underlying strength of the US Dollar.
As the Federal Reserve’s December meeting draws closer, the ‘Greenback’ is only likely to become sturdier. This means that while the ‘Aussie’ is likely to drive AUD/USD movement, strong and sustained surges are not expected.
Tuesday will see the Reserve Bank of Australia (RBA) hold its December policy meeting, which could give the Australian Dollar a boost if officials indicate that the bank will be continuing its neutral stance on monetary policy.
Wednesday’s Asian session will follow with Australia’s Q3 Gross Domestic Product (GDP) results, which could also bolster AUD demand if it impresses.
However, poor RBA and growth news would instead sent AUD/USD plunging. Prices of iron ore and the general attitude towards risk in the market will also limit the potential of ‘Aussie’ trade in the coming week.
Comparatively, the US Dollar is unlikely to be volatile. Even if next week’s US data disappoints, Fed rate hike bets will remain high and the US Dollar will remain supported.
Ultimately, the Australian Dollar exchange rate is likely to fall next week but could at least hold its ground if domestic and global factors are in the Australian Dollar’s favour.