The Australian dollar is considered one of the riskier currencies. It is a commodity based currency with heavy reliance on Chinese economic performance. The US dollar has been the destination of choice for investors for some time. It is considered a safe haven currency and also has the promise of high returns with the current interest rate level set at 2.25% by the Federal Reserve. Current 10yr bond yields are also at multi-year highs.
The midterm results however may cause investors to consider the Australian dollar. With Democrats gaining new powers after taking control of the House of Representatives we could see US dollar weakness.
Democrats will make any change in fiscal possible extremely difficult to pass. They will also have the opportunity to scrutinise the Trump election campaign and the alleged Russian involvement in Donald Trump gaining power. If President Trump were to be ousted from his position this would hit the USD. The Australian dollar suddenly looks more appealing.
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This week we witnessed the Reserve Bank of Australia interest rate decision. There were no surprises and rates remain on hold at 1.5%.
At present there is not enough positive data to warrant a rake hike. One of the causes for concern is the recent fall in house pricing even in the areas of high demand such as Melbourne and Sydney. This could be a small fall out from years of foreign investment in Australian property.
Tomorrow's RBA monetary policy statement will be watched eagerly by investors to see if there is any hint given to monetary policy moving forward. Personally I would expect a rather dovish tone without any great shakes, my crystal ball isn’t always 100% however, so keep an eye on developments as they unfold.