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.
The Australian dollar is currently mixed. The Aussie is flat against the US dollar, while strengthening against the Japanese yen, euro and the British pound. Yesterday, the currency strengthened against the US dollar at the outset of the day, but ended the day lower. Today's AUD/USD trading range is 0.7350 - 0.7510. The pair is currently trading just above the low end of our indicated trading range.
Chinese equity markets have resumed selling off after yesterday's rebound. Both the Shanghai Composite and Hong Kong's Hang Seng Index are currently weaker. The Chinese offshore yuan (CNH) is also down sharply, with USD/CNH currently trading above 6.50. Given Australia's significant trading relationship with China, the currency tends to closely track developments in Chinese financial markets. Thanks to an ongoing deceleration in growth across emerging markets, the Australian dollar remains under pressure.
Looking at developments from Australia, RBA Governor Philip Lowe said that global inflation may be set to remain low for extended periods of time. Lowe also highlighted the unknown risks associated with prolonged quantitative easing. Recent communications from the RBA suggest that the Bank remains firmly in neutral.
In politics, Prime Minister Turnbull has claimed a major victory after passing income tax cuts through Australia's Senate. The news had a limited impact on the currency as the Australian dollar remains weighed down by concerns regarding the future outlook. Our outlook on the Australian dollar remains bearish.
AUD/USD is down slightly and trading just above 0.7350. EUR/AUD is down and trading above 1.5680. GBP/AUD is down slightly and trading above 1.7830. AUD/JPY is up slightly, and trading above 81.20.
|June 19||House Price Index YoY Q1||2%||5.0%|
|June 19||RBA Meeting Minutes|
|June 20||RBA Gov Lowe Speech|
|June 21||Westpac Leading Index MoM MAY||0.2%|
|June 21||RBA Bulletin|
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.
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…
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.
For a currency that strengthens when global growth accelerates, recent moves in the Australian dollar have been fairly disappointing. While the currency rocketed higher between mid-December and late January, the Australian dollar has sold off sharply in recent weeks. The currency first began weakening against the Japanese yen, which led us to downgrade our short-term AUD/JPY outlook to neutral on…