Australian dollar - AUD

The Australian dollar, also known as the Aussie, is Australia's national currency. It is currently the world's fifth most traded currency. The Australian dollar is involved in 3.5% of all global foreign exchange trading, according to a recent survey from the Bank for International Settlements. As a commodity currency, the value of the Australian dollar is heavily influenced by prices of base metals such as iron ore and copper. 

Outlook
Bearish

Daily update

The Australian dollar is currently strengthening against all major currencies except the euro. Yesterday, the aussie ended the day higher against the US dollar. Following the recent sell-off, the currency had moved into oversold territory (while the US dollar looked overbought). However, the Australian dollar's recent recovery has been fairly limited. Today's AUD/USD trading range is 0.720 - 0.7340.

Yesterday, the Australian dollar was the strongest major currency. Thanks to improving risk sentiment, emerging market currencies were stronger and commodity prices were higher. This provided a welcome boost to the aussie after a big selloff in recent history.  

Looking at developments in China, Reuters reported that the People's Bank of China has banned banks in its free trade zones from certain lending activities in order to ease pressure on the yuan in offshore markets. The restrictions aim to prevent commercial banks from using some interbank accounts to deposit or lend yuan offshore, tightening offshore yuan liquidity and making it more expensive to short the currency. The move aims to support the Chinese yuan which has weakened against the US dollar for nine straight weeks. Because of Australia's significant trading relationship with China, the Australian dollar is heavily influenced by developments in China. 

Turning to local news, in a speech today RBA Governor Philip Lowe talked down the Australian dollar. Lowe said that a lower further modest depreciation in the currency would be helpful to boost inflation and stimulate growth. A lower currency generally leads to higher prices of imports into the country, which puts upward pressure on inflation. It also makes exports out of the country cheaper, which helps to boost the economy. Our outlook for the Australian dollar remains bearish.

AUD/USD is up and trading just above 0.7280. EUR/AUD is flat and trading above 1.5660. GBP/AUD is down and trading above 1.7460. AUD/JPY is up slightly, and trading above 80.60.

Date Event Actual Previous
August 14 NAB Business Confidence JUL 7 6
August 15 Westpac Consumer Confidence Change AUG -2.3% 3.9%
August 15 Westpac Consumer Confidence Index AUG 103.6 106.1
August 15 Wage Price Index YoY Q2 2.1% 2.1%
August 16 Employment Change JUL -3.9K 58.3K
August 16 Participation Rate JUL 65.5% 65.6%
August 16 Unemployment Rate JUL 5.3% 5.4%
August 17 RBA Gov Lowe Speech
August 17 RBA Ellis Speech
Updated 

Australian dollar Outlook

Outlook
Bearish

Updated 

Background

Policy: Unlike its developed market peers, the Reserve Bank of Australia (RBA) appears to be in no hurry to hike interest rates. As the RBA has cautioned against the strength of the Australian dollar in its minutes, this suggests that there is limited scope for monetary policy changes. Looking at fiscal policy, the government has operated a deficit budget for many years, investing heavily in infrastructure and education. Thus the impact from a neutral monetary policy and pro-growth fiscal spending is mixed today. 

Sentiment: Speculator sentiment has been mixed towards the Australian dollar in recent times (looking at the Commitments of Traders report). At times, sentiment has been excessively bullish, but this typically results in a short-term pull back in the currency. In general, market sentiment is likely to lean towards optimism given that global economic growth remains strong and commodity prices are strengthening. 

Economic data: Nicknamed "the lucky country", Australia typically enjoys high growth rates relative to developed countries. In the last few years, GDP growth has been more in line with other developed countries. While growth remains positive, the country is no longer growing much faster than other developed countries. Inflation has also been subdued. Recently, inflation has fallen below the RBA's target rate of 2-3% over time. Thus the impact from Australian growth and inflation data is mixed.    

Analysis

In our last commentary on the Australian dollar, we wrote that the currency was an enticing short opportunity thanks to slowing Chinese growth and a bearish trend. Specifically, we recommended shorting AUD/USD as means to express a bearish view on the currency. Since that time, the pair has weakened (from 0.7560), and is trading around 0.7280 on August 13.  Going forward, we see further...

Published 

In our previous take on the Australian dollar in late February, we wrote that falling commodity prices, an ongoing slowdown in China, and weak domestic conditions (looking at both economic data and monetary policy expectations) were significant headwinds for the currency. Beyond economic indicators, quantitative signals also suggested that the bullish trend was running out of steam. We downgraded…

Published 

We take a closer look at the Australian dollar forecast, and how domestic and international economic changes are set to impact the currency. From China's slow down to key domestic indicators that reveal slowing growth, we break down why we're changing our outlook on this commodity currency.

Published 

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