AUD/USD: Business conditions in Australia have deteriorated. Fundamental analysis for 09.08.2016

The Australian dollar is one of the few currencies holding positions against the USD in the currency market. At the beginning of today’s trading day the pair AUD/USD has almost reached the highs of July near the level of 0.7675. The rise in the AUD was apparently triggered by the increase in prices of oil and commodities and the rise in the Asian and European stocks.

Yesterday, sovereign credit rating of South Korea was upgraded from ‘AA-‘ to ‘AA’ , which triggered the rise in the Asian currencies before the start of the current session and also supported the Australian dollar.

On the other hand, according to the survey by the National Bank of Australia, business conditions and business confidence have decreased in Australia in July due to increasing uncertainty about the long-term prospects for the Australian economy. Index of business condition fell to 8 in July against 11 in June. Index of business confidence fell to 4 in July from 5 in June.

Last week the RBA cut interest rate to the level of 1.5%. In the following up comments the Bank said that core inflation will be below the target level of 2% -3% in the range of 1.5% to 2.5% until the end of 2018. According to the RBA, slow growth in wages, unused resources in the labour market and the decline in the leasing prices will curb inflation growth over the next few years.

Although short-term development of the economy is satisfactory, long-term risks to the Australian economy are increasing, which may force the Reserve Bank of Australia to lower interest rate twice this year.

Next meeting of the RBA will be held on 6 September. After September 21, the US Fed will make interest rate decisions. There is only 15% probability that the interest rate will be raised in the USA before the first debate between presidential candidates Hillary Clinton and Donald Trump, which is scheduled for September 26, and after the weak data on GDP in Q2, although US labor market data for July was positive. However, market expects that the rate in the USA will be raised by 0.25% at the end of the year.

Taking into account the difference in the monetary policies of the USA and Australia, it is likely that the pair AUD/USD will go down in the medium term.

AUD/USD: Business conditions in Australia have deteriorated.  Fundamental analysis for 09.08.2016