Australian dollar outlook: a sinking US dollar floats all boats

Australian dollar forecast: neutral

The Australian dollar surged toward a two-month high at the end last week as the US dollar collapsed on the market perception of a change in Federal Reserve policy.

Federal Open Market Committee (FOMC) meeting minutes revealed what astute observers already knew. That is, ongoing rate hikes appear likely to be less than the four 75 basis point (bp) jumbo lifts seen previously.

The short-term interest rate market continues to price in a 50 bp bump up at the December Fed gathering. This hasn’t changed from prior to the last meeting.

Nonetheless, the market interpreted the minutes as a dovish tilt and the US dollar followed long-end Treasury yields lower.

Across the ditch, the Reserve Bank of New Zealand (RBNZ) re-accelerated their rate hiking program, adding 75 bp to their official cash rate (OCR) last Tuesday, which is now 4.25%. They had been consistently lifting…

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