Author Dmitri Demidenko / Reviewed by Jana Kane
Familiar factors like diverging monetary policies, a strong Chinese yuan, and global risk appetite are sparking fresh interest in the Australian dollar. Let's discuss this topic and make a trading plan for the AUD/USD pair.
The article covers the following subjects:
- Major Takeaways
- Weekly Fundamental Forecast for Australian Dollar
- Weekly AUDUSD Trading Plan
Major Takeaways
- The RBA is set to raise its key interest rate.
- Derivatives markets are bracing for three rounds of monetary tightening.
- The S&P 500 and the yuan will support the Australian dollar.
- Consider buying the AUDUSD pair above 0.705.
Weekly Fundamental Forecast for Australian Dollar
What’s old is new again in the markets. The conflict in the Middle East has upended the landscape, with former leaders falling behind and underdogs taking the lead. Now, easing tensions between the US and Iran, along with renewed negotiations and hopes for peace, are drawing traders back to the assets that dominated earlier this year. On Forex, that shift is bringing the Australian dollar back into focus.
The AUD/USD rally in January and February was driven by rising global risk appetite, prompted by China’s resilience to US tariffs and a stronger yuan, as well as by the Reserve Bank of Australia's tighter monetary policy. The RBA raised its key rate twice, in February and March, amid concerns that the strength of the Australian economy could further fuel inflation.
Inflation in Australia and Other Countries
Source: Bloomberg.
Minutes of the RBA’s latest meeting highlighted concerns that inflation may remain above the upper end of the 2–3% target range, as Middle East tensions push oil prices higher. The central bank also signaled inflation could reach 5% by the end of the second quarter. Deputy Governor Chris Kent said such an outcome would likely require further policy tightening.