The Australian dollar has showed strong resilience to the rate cuts by the Reserve Bank of Australia.
Steven Dooley, Head of Research for currency trading platform ForexCT, says that while the dollar has not fallen significantly, it is highly unlikely to break to new highs.
Mr Dooley said that the rate cut theme will influence the dollar for some time. “The market tends to be single-minded about certain themes, and at the moment everything is being viewed through a prism of potential rate cuts.” He said the rate cut theme will continue until either (in order of most likely to least likely):
The RBA makes another cut and suggests the rate cutting cycle is over
Inflation pushes higher and RBA says “inflation expectations are now heightened” or similar, suggesting the cutting cycle is over
RBA says global conditions have improved and ratchets up growth/inflation expectations.
“This will take a while to play out but while rate cuts remain the primary focus of the RBA, we’d expect the AUD to be capped in this new massive trading range”, Mr Dooley concluded.
“As we saw back in October, a bad news announcement from overseas could easily see the dollar dwindle back below parity. And while the focus remains on further rate cuts, it is likely to be difficult for the Aussie to punch above 1.1000,” Dooley said.