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 selling off sharply, and is weaker against all major currencies. AUD is currently the weakest against the US dollar. Yesterday, AUD/USD failed to strengthen despite broad strength in the US dollar. The currency remains in a firmly bearish trend as Chinese GDP growth decelerates while the Reserve Bank of Australia remains on hold.
There are no significant news headlines from Australia today, as the country is on holiday for ANZAC Day. Instead, the Australian dollar is selling off as risk sentiment worsens. Following yesterday's stock market sell-off during US trading hours, Chinese equity markets are lower today. China-sensitive commodities, such as industrial metal prices, are also falling sharply today. As we have written before, rising bond yields are hurting asset prices thanks to decelerating global growth. While rising yields have had a limited impact on riskier investments in the past, investors are reluctant to chase risky investments today thanks to the worsening outlook for growth this year. Our short-term outlook and medium-term outlook on the Australian dollar remains bearish.
AUD/USD is down and trading just above 0.7570. EUR/AUD is up slightly and trading above 1.610. GBP/AUD is up slightly and trading above 1.8410.
Turning to economic data and events from Australia this week, traders will be watching upcoming inflation figures. RBA Assistant Governor Kent downplayed fears regarding interest-only mortgages. The Q1 consumer price index (1.9% vs. 2.0% expected) was below expectations, while the RBA’s trimmed mean CPI (1.9% vs. 1.8% expected) was ahead of expectations. On Thursday, we’ll see the export and import price index for Q1. On Friday, we’ll see producer prices for Q1. Last week, changes in employment missed expectations.
As the Australian dollar weakens, we are now bearish on the currency. 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 runs out of steam, we are now bearish 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.
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.
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