In the months leading up to the release of the RBA rate decision, one currency pair is poised to benefit greatly from the bank of America’s new high rate environment. It’s not the Euro, or Yen, or Canadian Dollars, or Swiss Franc that may cause a hike to influence market sentiment, but rather the AUD/USD rate.
By the time the Bank of America rate decision is announced, the AUD/USD rate could be nearing an all-time high. As a result, it could be the most important major currency pair to watch for the minutes leading up to the announcement. What the rate decision will be saying about the strength of the U.S. dollar in the global market, and for the individual countries, has been at the forefront of currency strategists’ minds.
As the currency market bears witness to the ultra-low dollar and weak dollar trends that are quickly wiping out economies around the world, the overall outlook for the dollar has changed significantly. The first step in knowing when to profit from an AUD/USD rise is by watching the EUR/USD rate. That pair has also seen unprecedented currency appreciation over the past year. Both of these pairs have significantly risen in recent months.
Any time a pair like EUR/USD rates rises significantly, the AUD/USD rate should also rise. This has been the case and even though this may not have been what the Bank of America rate was thinking of when it made its announcement, it is an indication that it will be something the market will react to. We’re seeing indications that the AUD/USD rate is likely to reach a level of between $14.50 and $15, which would represent a sharp appreciation from its current level of approximately $12.50.
Even if the Bank of America rate decision does not fully support the increase in the AUD/USD rate, it’s a very positive sign for investors. This is particularly true when you consider the likelihood that it could be a favorable development for the dollar for the next few years.
Forex investors are currently enjoying a remarkably low interest rate environment. Even with an uptick in the US dollar, and in turn the AUD/USD rate, the number of investors who will take advantage of the opportunity presented by the announcement is bound to increase significantly.
This speaks to the strength of the strong dollar situation, as well as the performance of the AUD/USD rate itself. Historically, any time a pair such as this has seen a substantial appreciation, it’s resulted in a significant increase in the value of the currency.
A USD-AUD pair with a strong dollar outlook has proven to be a winner for investors in the past. This doesn’t mean it will always happen to you, however, which is why watching the AUD/USD rate closely and acting on it is important.
To many, especially those who follow the Forex market, the combined strength of the strong dollar forecasts, along with rising inflation are reasons for optimism. Although it’s far too early to tell whether the government’s proposal to raise the fed funds rate will come to pass, the uncertainty of its possibility has prompted several investors to begin to take a more long-term view.
If the Fed does lower the interest rate, these investors may want to consider buying into AUD/USD pairs with large sums of capital in order to avoid a quick depreciation in the value of their investment. This doesn’t mean they should just assume that the spot price of the currency will increase in the short term.
Every time the market moves, the exchange rate changes. If they’re smart, currency traders will be anticipating the changes and holding off on the cash they’ve made in order to see if the market rises following the announcement.
The next few months will be telling, as we see the currency markets reacting to the latest in the AUD/USD rate decision. When the news comes out, will the AUD/USD rate rise?