Australian Dollar is up 4.6% YTD and more than 7% in last three months, helped by weakness in Dollar and rally in iron-ore, its main export commodities. However, Australian currency has ceased to reflect economic fundamentals, instead relying more on the above two factors. Economy, moreover its mining sector is still suffering from weakness, inflation and growth, both weak. And strength in Australian Dollar is doing no good to the economy. In last six months, it has appreciated close to 10%, against Chinese Yuan, its major trading partner.
So, it’s in the best interest of Australia, that its currency weakens.
While market has shrugged of monetary policy actions by major central banks this year and led to the appreciation of their currencies. But market is presenting Reserve Bank of Australia (RBA) a rare opportunity to push Aussie down in tomorrow’s monetary policy.
Last week’s weaker than expected inflation has pushed Aussie down against its major trading counterparts, even as Dollar weakened and iron ore gained ground. Inflation came at 1.7% y/y in first quarter, weakest in more than 16 years.
If RBA succeed in creating an impression that it stands ready to take further and talk beyond the usual rhetoric and push Aussie down below 0.75 area, then market is likely to take up the charge and push Aussie down further by 500 pips.
Since iron-ore price pop up is fuelled more by Chinese speculative frenzy, further price rise in the commodity may not be sufficient to push the currency up. Aussie is currently trading at 0.763 against Dollar.
RBA will be releasing its monetary policy decision at 4:30 GMT.
The material has been provided by InstaForex Company – www.instaforex.com