Is There Some Bad News For Those Who Trade In Australian Dollar As Central Bank Seems To Be Dovish?

  • Oct 31, 2018 AEDT
  • Team Kalkine
Is There Some Bad News For Those Who Trade In Australian Dollar As Central Bank Seems To Be Dovish?

The Australian Economy has been struggling a lot and the key reasons are increased trade tensions between the US and China, downturn in the global markets, increased regulatory pressures for the banking sector as well as declining housing prices. The traders in the Australian dollars might face the hard time moving forward as the currency is expected to witness a significant downtrend against the US dollar. The primary reason for the substantial downtrend is that the central bank is expected to resort to the policy of quantitative easing or QE i.e. they would be more dovish moving forward. The apex bank can even opt for the rate cuts.

The slump in the housing market as well as lower consumer confidence are expected to be the primary headwinds for the broader Australian economy leaving behind the Reserve Bank of Australia or RBA by other central banks like Federal Reserve in the United States. While there is no chance that RBA would hike the interest rates moving forward, the Fed, on the other hand, is expected to announce 3 or 4 rate hikes in the next year. The Federal Reserve’s hawkish view is primarily driven by the strong US economy. 

The increased trade tensions between the US and China are likely to impact the China’s growth prospects which would be impacting the broader Australian economy because China is the major trading partner to Australia. The global economists are of the view that the apex bank in Australia would be holding the cash rate target at the same level i.e. 1.5% in the meeting which is scheduled for November 6, 2018.

The RBA is likely to be more dovish on the monetary policy and that could impact the Australian dollar. Moreover, the Royal Commission’s interim report might also change the landscape for the entire banking sector. A rise in the compliance procedures would lead to higher regulations in regard to the lending activities which would discourage corporate and retail borrowings. As a result, the businesses would not be able to make deployments in the growth initiatives and fall in the consumer lending would mean lesser purchasing or spending by the consumers. This could impact the overall economy.

Moreover, the report of International Monetary Fund or IMF also suggested that the fortune of the Australian economy might be at risk if the trade tensions between the United States and China accelerate. It seems like that has a possibility to come true. Recently, the Trump administration has announced its plans to levy further tariffs on the Chinese imports if the talks between the them does not end well. The Chinese economy has already suffered a lot and it seems like they need to brace themselves for more headwinds. The downtrend in the Yuan against the dollar as well as in the manufacturing activity reflects that the impact of the trade battle has been felt. Not a good momentum was witnessed in the manufacturing sector of China in the month of October because of the unfavourable momentum witnessed in the external as well as domestic demand.


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