Dollar gains on rates and risk
By Arnaud Masset
On Wednesday morning the US dollar was better bid against most of its peers, despite the dovish turn of the US Federal Reserve. The greenback rose the most against the Australian dollar. Only the Japanese yen was able to hold its head above water - thanks to its safe-haven status – with USD/JPY consolidating around 111.80. USD bears will continue to struggle, thanks to higher interest rate in the US and a persistent risk aversion. Rates in the US are more attractive than those in other countries in Europe and Asia, which gives the dollar a clear advantage. Elevated risk aversion is benefiting safe-haven assets, such as the yen and the buck. Oddly, the Swiss franc seems to have lost its safe-haven status, which suggests that the strategy of the Swiss National Bank (i.e. negative interest rate coupled with FX interventions) is starting to bear fruit.
Aussie falls on bearish outlook
By Vincent-Frédéric Mivelaz
The AUD/USD pair hit a two-month low as the Australian economy grew by 2.30% in December 2018, its weakest pace since June 2017. Expectations of 2.80% were greatly missed, suggesting the Reserve Bank of Australia’s growth outlook of 3% in 2019 should be downgraded soon. It’s likely the RBA will cut interest rates this year. Wage growth remains far from ranges of 6 years ago (2.30% in Q4 2018) while the sharp drop in investment and construction activity due to declining house prices should prompt a reaction. January capacity utilization of 81.40% is its lowest since April 2017.
Yet fiscal stimulus by the Australian government and rising commodity prices allow the RBA a wait-and-see approach. Lower growth should lead to monetary easing sometime in the first half of 2019. AUD/USD is expected to drop further short-term: currently at 0.7030, AUD/USD is expected to head along 0.7020 short-term.