AUD/USD=0.63201
There is more to Australia than the Australian Open, which I look forward to each year because it signals the beginning of the tennis season ( For my fellow tennis-heads, the dates are 14 January to 28 January 2024).
Prior to the tennis hardcourt play down under is the political hardcourt play in the United States starting tomorrow as Australian prime minister Anthony Albanese is expected to meet with U.S. president Joe Biden. The two are expected to speak primarily about the AUKUS pact, an agreement between Australia, the United Kingdom and the United States on nuclear submarines and submarine technology.
The Albanese-Biden visit has been billed as an alliance for the future. Part of that future entails amending export controls that apparently limit how much technology can be transferred to Australia.
How Biden plays this visit may increase the U.S. president’s influence in the Asia region. Albanese is expected to visit China in November. What he will discuss with Chinese leaders, I do not know. I suspect technology and trade will be at the top of the list. I also expect Albanese to optimize Australia’s political and economic relationships in Asia by holding Australia out as a partner that can be the go-between in a China-United States tense relationship.
To maintain his political capital, Mr Albanese will have to optimize Australia’s interests first and that may mean Mr Biden not getting everything he wants from Mr Albanese.
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Meanwhile, one reflection of how well Mr Albanese is optimizing Australia’s interest is in the value of Australia’s currency. Around 6:00 am EST, the AUD/USD was at 0.63201, up seven pips from yesterday’s OANDA reading of 0.63129. I see a .77 probability that the six-day average of 0.631735 will be exceeded. I am betting that by end of week trading the spot price will remain around 0.63201.
This observation goes against the grain as the dollar has been strengthening, but reportedly hawkish sentiment out of the Reserve Bank of Australia may have a stalling effect on dollar strength. In addition, Aussie and American ten-year yields appear comparable (4.678% and 4.86%, respectively), while unemployment in both countries is at 3.6%.
Inflation is the kicker, with Australia reporting an inflation rate of six percent compared to 3.7% in the United States. Traders may bet on Australia given expected moderation of the inflation rate from six percent to 5.3% expected at the next print.
Australian banks may have more incentive to infuse their economy with loanable funds. The Australian cash rate, the Aussie version of the American fed funds rate, is at 4.10%. Given the hawkish sentiment mentioned above, the markets expect the overnight rate to climb to 4.35% during the RBA’s next policy meeting.
The Australian Open may not be till January, but the political-economy season always stays open.
Alton Drew
24 October 2023
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