Updated October 5th: Overnight the AUD reached a two-and-a-half-year low against the USD.
As the US economy improves, its dollar continues to go from strength to strength.
The USD is outperforming all major currencies (including our little Aussie Dollar), as strong US service industry data and job reports boost their bond yields to multi year highs. The market’s biggest question now is whether the States can continue this level of economic and currency outperformance.
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Off the back of this positive data, US Fed rate hike expectations have increased. The market is currently pricing the probability of another US interest rate hike in December at 80%. They are also leaning towards slightly more than two full hikes for the 2019 calendar year.
This is why when the Fed announced the increase in rates last time it had little to no effect on the Australian dollar - it had already been largely priced in.
Amidst its strong economic performance, the US continues to battle it out over international trade with China. The trade war has intensified as both sides announce new tariffs, despite pressure from US domestic firms that rely heavily on Chinese imports.
To add salt to the wound, Trump has passed trade deals with South Korea, Japan and the European Union.
At home, the AUD fell from 0.7190 to 0.7118 overnight as it fails to breakout above its recent 0.7300 high a few weeks ago. Instead, the market is seeing if it can hold the lows of 0.7100 seen around the 11th of September 2018.
With no major data coming out of Australia for the week ending 5th October, the AUD is probably likely to trade within a tight range unless something groundbreaking happens overseas.
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