Fundamental Australian Dollar Forecast: Neutral

This looks like a nervy, tricky week for an Australian Dollar which has been stuck in a downtrend since mid-March. There are tentative signs that that trend is slowing, and that some sort of AUD/USD base might form around current levels. But they are tentative.

It’ll be a tale of two central banks unfold for the Aussie, too. Monetary policy decisions are due on Tuesday from the Reserve Bank of Australia and on Wednesday from the US Federal Reserve.

It’s the Fed that is likely to have most impact, but neither may have much.

After all, to say that the RBA is expected to leave its Official Cash Rate (OCR) at the record low of 1.5%, at which it has languished since last August, is to understate the case. The ASX 30-day interbank cash futures implied yield curve (a longhand way of saying “Australian interest rate bets”) implies a 98% chance of no change on Tuesday.

Indeed, it doesn’t price in any change to the OCR this year, and hasn’t for some time. But last week’s news of an admittedly modest miss for Australian consumer price rises in the first quarter has only made markets more sure that there’s “nothing to see here” when it comes to the RBA.

The Fed isn’t expected to alter policy on Wednesday either, although markets do see more rate rises ahead this year even though much US economic data isn’t quite as strong as it was. Last month evena relatively hawkish Fed wasn’t enough to see the greenback rise in response. The Fed seems unlikely to sound any more hawkish this month, so there may be some Aussie respite in prospect there.