11 Oct 2013
RBA ahead of the curve vs Fed? what it means for AUD/USD?
FXstreet.com (Barcelona) - It is worth noting the resilience of the Australian Dollar to prevent any major fall despite some risk off swings having emboldened the markets in recent weeks.
In a fundamental note, as things stand, the RBA looks set to raise the cash rate well ahead of the Fed, ans while the Fed has been engaged in constant talk of a QE taper, that alone should not act as the main driving force for a lower AUD/USD.
Instead, the potential positive effects of raising rates in Australia in the next 12-months, a scenario starting to be priced into the swap rates market - even if only timidly - should outweigh QE taper-induced USD strength.
Expectations by the market are still of a slow pace taper if taking place, thus reinforcing a potential case for the Australian economy ahead of the curve again in hawkish policy actions vs a lagging Federal Reserve.
If this scenario were to materialize in Q2 to Q4 2014, there is a case to be made for the AUD/USD to retest parity levels, while failure by the RBA to transition into a more hawkish stance and/or rapid acceleration of Fed projections to raise the cash rate - expected some time in mid/late 2015 now - may jeopardize this view.
Relating to QE and rates, Bill Gross recently said: "It’s the policy rate, both spot and forward, that prices markets and drives economies and investment decisions. QEs were simply a necessary medicine for rather uncertain and illiquid times. Now that more certainty and more liquidity have been restored, it’s time for the policy rate and forward guidance to assume control."
In a fundamental note, as things stand, the RBA looks set to raise the cash rate well ahead of the Fed, ans while the Fed has been engaged in constant talk of a QE taper, that alone should not act as the main driving force for a lower AUD/USD.
Instead, the potential positive effects of raising rates in Australia in the next 12-months, a scenario starting to be priced into the swap rates market - even if only timidly - should outweigh QE taper-induced USD strength.
Expectations by the market are still of a slow pace taper if taking place, thus reinforcing a potential case for the Australian economy ahead of the curve again in hawkish policy actions vs a lagging Federal Reserve.
If this scenario were to materialize in Q2 to Q4 2014, there is a case to be made for the AUD/USD to retest parity levels, while failure by the RBA to transition into a more hawkish stance and/or rapid acceleration of Fed projections to raise the cash rate - expected some time in mid/late 2015 now - may jeopardize this view.
Relating to QE and rates, Bill Gross recently said: "It’s the policy rate, both spot and forward, that prices markets and drives economies and investment decisions. QEs were simply a necessary medicine for rather uncertain and illiquid times. Now that more certainty and more liquidity have been restored, it’s time for the policy rate and forward guidance to assume control."