The Australian dollar has rallied substantially over the past month, buoyed by rising commodity prices such as Iron ore, the country’s biggest export as well as growing expectations that a trade deal between the US and China will finally be reached.

But one analyst believes the market may be overly optimistic on the chances of a deal being reached between the world’s 2 superpowers and as this becomes evident the Aussie dollar is likely to give up its recent gains.

On the Australian dollar’s recent rally said Sean Callow, senior currency strategist at Westpac noted,

“It’s temporary strength, It’s been squeezed higher over the past couple of months by underlying support from commodity prices, leading to record trade surpluses. That’s been really positive.”

With regards to the trade deal Mr Callow noted, “We’ve been on the pessimistic side of that for a long time, Our Asia strategist thinks the roadblocks on the key issues are too substantial for any major agreements. A partial deal is best we can hope for.”

Earlier today, the reserve bank of Australia kept interest rates on hold at 0.75 percent which was widely anticipated by the market after an upswing in inflation figures and a marginal improvement in the unemployment rate.

Keeping rates on hold is also seen as temporary and Mr Callow predicts that the central bank will continue their rate cutting cycle next year

“We have forecast a rate cut in February, that would obviously not be helpful for the Aussie. As long the RBA’s work is not done getting unemployment below 5 per cent, inflation back target and get wages going, that just keeps a lid on rallies.” He said