Originally posted on the forex factory on Jan 5, 2008
At first glance it may seem that the ever increasing chance of a U.S. recession and lower interest rates from the Fed would benefit the AUD/USD, but that is not the case for a variety of factors.
While the interest rate picture still heavily favors the AUD, the stock market needs to stabilize first in order for people to be willing to start buying up AUD’s in great number.
Gold prices are making new highs but the prospect for slower global growth via the U.S. slowdown may slow down the demand for commodities.
The Bank of England and Bank of Canada both started to lower interest rates following the Fed and that had some profound effects on the market. People were starting to realize that this whole story about the rest of the world “decoupling” from the U.S. economy was a bit exaggerated.
Therefore in the current environment the AUD will have a difficult time benefited from the weakness in the dollar. In order for it to start gaining ground substantially people’s uncertainty about the outlook for global growth needs to be resolved.