Things were looking quire rosy for the Australian dollar coming into last week’s open, as the week prior had delivered a boost for the Aussie – positive trade headlines pushing the currency pair back through 73 US cents.
But the positive headlines were short-lived as China announced it had cancelled its trade talks with the US, putting the Aussie on the back foot to kick off the week. Whilst the week did deliver fresh monthly highs with AUDUSD reaching 0.7315, these levels were unsustainable.
As expected the US central bank raised interest rates for the third time this year, the accompanying statement initially interpreted as less hawkish as anticipated which was the catalyst for the spike to weekly and monthly highs. However Fed Chair – Jerome Powell’s press conference to follow reminded market investors that there is likely one more hike for 2018 and a further two or three for 2019.
From this point AUDUSD remained under pressure for the rest of the week.
Monetary policy divergence via the Fed hiking rates and the RBA being on hold for what seems like ever has been one the key drivers for the Aussie falling throughout the year.
Another driver has been capital flows out of the Euro and into the US dollar, also causing the USD to strengthen and by design, the AUD to head lower vs the USD. One of the reasons for this earlier in the year was Italy seemingly heading for a constitutional crisis and Eurozone political turmoil intensifying. This was once again the concern through the latter stages of last week as Italy and the EU deals with a potential budget crises.