The Australian dollar, once a darling for the carry trade has seen its fortunes decline against its US counterpart of the last year on the back of aggressive rate hikes from the US Federal reserve which has seen the greenback overtake the Aussie dollar in terms of yield which is something e haven’t witnessed in over a decade.
If that wasn’t already bad enough, speculation that the Fed was not done with their rate hiking cycle and planned to continue well into next year has poured more fuel on the fire with regards to the Australian dollar.
No this speculation has been thrown into question and some say there are problems developing in the US economy which may force the Fed to cut back on their rate hiking ambitions which will be welcome relief to currencies such as the Aussie and may set the stage for a rally.
“A MNI report suggesting the Fed may be looking to pause next year got a fair bit of air time and has played a role for the small pullback in the USD overnight,” said Rodrigo Catril, Senior FX Strategist at the National Australia Bank.
“The report also noted that the Fed is just one or two hikes away from a point where major decisions have to be made about the outlook, so while a December rate hike is all but assured, the debate will become more lively beginning at the central bank’s March meeting and certainly by June.” He added.
This week marks the start of the Thanks Giving holiday shopping session in the US, which will be closely monitored by the market for signs of consumer confidence and will also play an important factor on helping the Fed whether to lift interest rates higher.