The Aussie dollar is trading at $0.736 against the US dollar this morning. It’s fallen 0.18% against the greenback, slightly down on last week. But the real test for the Aussie will come later this week.
The main concern for traders is the release of minutes from the Federal Reserve’s July meeting. The minutes are set for release this Thursday. That’ll give us a better indication of where US interest rates are heading. Until that becomes clearer, the dollar isn’t likely to budge too much.
Any confirmation that rates are heading up in the US will weigh on the Aussie dollar. But at least the volatility of last week is behind us.
The Aussie dollar had fallen on the back of China’s yuan devaluations. The Chinese central bank debased the yuan by over 4% between Tuesday and Thursday. These devaluations were reactive. They were responding to poor trade data that came out last Monday. It added weight to suggestions that China’s economy was slowing.
The effects of this sent the Aussie dollar lower throughout the week. No commodity currency was left untouched by the devaluations either. At least, that was until Friday last week.
The decision from Chinese policymakers to reverse the yuan’s devaluation stemmed the Aussie’s slide. A 0.05% appreciation of the yuan came as a relief to all commodity currencies.
That left the Aussie at $0.738 on Friday, slightly up for the week.
Markets are hoping that’s the last of devaluations we’ll see. But the bigger problem looming for the Australian dollar remains a potential US rate rise.
Minutes to reveal Fed’s stance on rate policy on Thursday
Experts still predict a September rate rise in the US as the most likely outcome. That’s despite less-than-favourable economic data coming out of the US economy in the last few months.
Despite strong retail sales, consumer confidence remains lower than expected. The same is true for employment figures, which also failed to meet expectations.
The minutes will show, one way or the other, what the Fed’s policy may look like going forward. A positive attitude to hiking rates would suggest the first rate increase since 2006. And it’d end years of near-zero rates for the world’s largest economy.
If, as expected, the Fed agree to raise rates, it’d immediately send the Aussie dollar down. In fact, it’d result in a medium term weakening of the Australian dollar.
Aussie dollar against other currencies
In other news, the Aussie dollar is down against other major currencies at the start of the week.
The dollar is down 0.04% against the Japanese yen. At 10:40am AEST, the AUD was buying 91.66 yen. It’s also down against the euro too, trading at €0.663.
Don’t expect too much change for the Aussie until later on in the week. After China stole the limelight last week, all eyes are back on the US Fed.
Contributor, The Daily Reckoning
PS: The Reserve Bank is set to release its August minutes on Tuesday afternoon. The minutes are won’t show any surprises, after the RBA left interest rates at 2%.
According to The Daily Reckoning’s Phillip J. Anderson, interest rates could remain low for a long time to come.
Phil’s written a brand new report, ‘Why Interest Rates Could Stay Low for the 21st Century’. In it, he warns that you won’t be able to rely on your savings to fund your retirement. As Phil says, inflation, from low rates, is eating into your savings. You can’t rely on savings accounts or term deposits for your retirement. The regular return on a term deposit has halved in the last four years alone!
That’s why Phil wants to show you the best way to invest in this low interest rate environment. He’s prepared a four pronged strategy that’ll boost your wealth. You’ll learn where to park your cash over the coming decades to profit immeasurably. To download the report, click here.