Australian dollar faces big test.

Financial and commodity markets analytics

The Australian dollar may face a wild ride this week and may be vulnerable to a possible rate hike from the US Federal Reserve which until now is barely priced into the market.

BNP Paribas' global head of foreign exchange, Steven Saywell noted that currencies like the Australian dollar could come under serious pressure in the wake of a surprise from the Fed which may come on Wednesday,

"We feel the market is underestimating the potential for the Fed to hike rates this year," he said. "We even feel there's a chance the Fed surprises the market and goes in September. What the FX market is telling us is they don't believe it” he said

"If the Fed hikes you could get a violent reaction, even if the Fed forces markets to price in more tightening, you could get a violent reaction. What do you sell against dollar?" "The Aussie" he added.

There is more volatility expected for the Aussie Dollar this week as Australia appoints a new Governor of the Reserve Bank of Australia Philip Lowe before the House of Representatives on September 22.

The market will be looking for a clear monetary policy direction from low and especially if there are any more interest rates cuts coming in the nearest future which he is known to have favored as deputy governor of the RBA.


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