20.09.201910:05 Forex Analysis & Reviews: The dollar will maintain its position in the short term (we expect the AUDUSD pair to decline and the USDCAD pair to resume growth)

The US dollar ended the week in generally positive territory, and this is despite the Fed's decision to lower its key interest rate by 0.25%, as well as vague statements by Fed Chairman J. Powell about the possible start of a new incentive program, which markets have dubbed QE4.

Therefore, the dollar received support against six major currencies with the exception of the British. Sterling, under Brexit's rule, grew after the newly made British Prime Minister B. Johnson lost the fight for Britain to leave the EU without a deal, when the local parliament forced Queen Elizabeth II to sign a decree on the need to conclude an agreement with the European Union. This contributed to some reduction of tension and pushed up the quotes of the British currency.

So what is the reason for the strength of the dollar? Why does it get support despite lower Fed rates and promises of new incentives?

This can only be explained by the factor of increasing tension in world markets, where the US-China trade war is making a negative contribution. The Fed's indecision in supporting the national economy due to ambiguous statistics, and the risk of inflation rising amid rising import costs due to higher customs duties and, of course, this is the desire of other world Central Banks to weaken the rates of their national currencies, as well as the general increase in tension in the world on the wave of inhibition of global economic growth. The dollar is simply classically perceived as a currency of refuge.

Over the past ten years, it has lost this function due to three large-scale incentive programs known as quantitative easing (QE). Investors simply lost the habit of this, and besides, a whole generation of traders and analysts has grown up during this time, who saw only the weakness of the American currency and nothing else. In our opinion, the situation has changed radically, and the markets will now have to fully take into account this fact, unless, of course, the Fed really starts to pump up markets with liquidity once again. Moreover, she has already begun to take the first steps - to conduct repo operations.

Again, we believe that the dollar will noticeably weaken only in the case of a new full-scale stimulus program. And until this happens, it will continue to receive significant support.

Forecast of the day:

The AUDUSD pair found support at 0.6785 and is correcting up. We believe that, despite its recovery, it is necessary to sell 0.6785 and 0.6700 on local growth.

The USDCAD remains in a short-term upward trend. It held above 1.3255. If oil prices do not begin to rise, we should expect continued growth of the pair to 1.3345.