The aussie is among the laggards in trading today again
I’ll try to keep this short and concise. There just isn’t much reason to keep a bullish conviction on the aussie currently and I feel like I’ve been repeating this for many a time over the past few months at least.
The tone was already set back in July here
but the fact that Australia’s virus situation turned for the worse exacerbated weakness in the currency for the most part.
That amplified worries that the RBA will steer off course from normalising policy i.e. tapering amid another hit to the economy in Q3. The only good news is that has come from all of this is that it has ramped up the pace of vaccinations in the country.
In turn, there should be a return to “normal” as we look towards Q4 with the target of 80% vaccinations set for key states such as New South Wales and Victoria.
But what does that mean for the RBA? Well, they tried to play with the optics
in their latest policy decision last week but nobody is really falling for it beyond the headlines.
I reckon the RBA may still err on the side of caution for now but that just continues to put them behind other major central banks who are better positioned to normalise or tighten policy, with the divergence against the RBNZ arguably the starkest.
In my view, that’s possibly one of the biggest headwinds for the aussie and makes it extremely tough to be constructive on the currency. In other words, there is just a better option out there so why this?
There might be an argument in terms of valuations but I reckon only after market sentiment towards the RBA improves that the aussie may be able to find better footing.
AUD/USD price action may not be the best representation in the latest developments in the aussie as the dollar itself is also rather stuck and pedestrian over the past two weeks, riding back and forth ahead of next week’s FOMC meeting.
But the continued push lower in AUD/NZD is still something that is a favourite of mine over the past few weeks and a push to parity isn’t entirely out of the picture.