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 fairly mixed today as the global stock market rebound runs out of steam. As a commodity currency, the Australian dollar is highly sensitive to global risk taking appetite. Today, investor sentiment appears to be waning based on global equity and commodity markets. Looking at Asian financial markets, key stock markets including China's Shanghai Composite and Japan's Nikkei 225 have only rebounded to a very limited extent. Austalia's ASX 200 is currently selling off. Relative to its major peers, AUD is currently flat against the US dollar while gaining against the euro and the British pound. As the currency has been fairly weak in the short-term, our outlook remains neutral. In the medium-term, we remain mildly bullish on the Australian dollar's prospects.
AUD/USD is down slightly and trading just above 0.7920. EUR/AUD is down and trading above 1.5710. GBP/AUD is down and trading above 1.7690.
Looking at economic data from Australia this week, traders will be watching employment figures. NAB business confidence (12 vs. 11 prior) was ahead of previous numbers. Westpac consumer sentiment (-2.3% vs. 1.8% prior) was below previous figures. Tomorrow is the most important day, and we'll see employment changes, the unemployment rate and consumer inflation expectations. On Friday, RBA Governor Philip Lowe will deliver a speech. Last week, the trade balance was significantly below estimates thanks to higher-than-expected imports.
As the Australian dollar runs out of steam, we are downgrading the currency to neutral. Looking at a daily chart of the Aussie, the currency is trading within a normal range. This is based on various technical indicators.
As the Australian dollar rebounds, we are now bullish on the Australian dollar in the medium-term. Looking at a weekly chart, the Aussie is trading within normal conditions. Our analysis is based on various technical indicators.
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.
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…
Looking at the latest COT report, there are new extremes in short Australian dollars and long euro positions. Long crude oil net positions continue to look fairly crowded. The US dollar remains out of favor, but positioning is not yet at a bearish extreme. Notable e…
In this week’s eventful COT report, there are new extremes in long British pound and short Australian dollar positions. Short Swiss franc net positions are no longer at an extreme, while long crude oil remains a consensus long position in the speculator community. This is shown below. Notable extremes are…