HomeNewsAUD/USD Spikes as Banks See a Softer Dollar
AUD/USD Spikes as Banks See a Softer Dollar

AUD/USD Spikes as Banks See a Softer Dollar

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The AUD/USD rate is on the offensive on Thursday after wall street analysts forecast the US dollar’s dominance is waning.

The Australian dollar is higher against the dollar by +0.00082 (+1.20 percent) to 0.6988 in European trading. The Aussie’s strength follows a sudden reversal in the dollar ahead of the Jackson Hole Symposium on Friday.

A report released Wednesday by Simon White of Bloomberg live makes a convincing case for dollar weakness. The report explains how the dollar’s strength could turn out to be its biggest enemy. The reason is that the stronger dollar threatens global growth by making it more expensive for holders of US dollar debts:

“A higher dollar makes it more expensive for foreign borrowers of USDs to service their debt, generating deleveraging pressure. It also makes the cost of buying new dollar assets more expensive in foreign-currency terms.”

Not forgetting, the world’s reliance on us-denominated commodities is causing inflation .

“Virtually all major commodities are traded in USD…therefore a rising dollar eventually depresses global trade as the price of everything rises in foreign-currency terms. The dollar’s current strength is causing a slowdown in global trade.”

To make matter worse, investment bank Morgan Stanley expects the dollar to soften against major trading pairs in the coming weeks. Subsequently, the Aussie dollar looks strong against the greenback.

Aussie to US Dollar Forecast

The daily chart shows AUD/USD has regained the 50-Day Moving Average (DMA) at 0.6914 (green line). SAs a result, the pair may soon test the resistance of the 100-DMA at 0.7030 (blue). In that event, the only thing in the Aussie’s path is the 200-DMA at 0.7132 (red).

The Relative Strength Index (RSI) is turning higher, supporting the bullish momentum. With this in mind, the immediate outlook for AUD/USD is higher.

Nonetheless, tomorrow’s speech from Fed Chair Powell at Jackson Hole could encourage volatility. For that reason, a close below the 50-DMA might trigger selling, cancelling the bullish outlook.

Check out the cheapest way to send money to Australia.

AUD/USD price Chart

Elliot Laybourne
Elliott is a former investment banker with a 20 year career in the city of London. During this time he held senior roles at ABN Amro, Societe Generale, Marex Financial and Natixis bank, specialising in commodity derivatives and options market-making. During this time, Elliott’s client list included Goldman Sachs, JP Morgan, Credit Suisse, Schroders Asset Management, and the Pennsylvania State Public School Employees Retirement System, amongst others. Today, he splits his time between Thailand and Dubai, from where he provides trading consultancy and business development services for family office and brokerage clientele.