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Australian dollar daily update for 2nd February 2018

BY DEB SHAW | 

The Australian dollar is once again sharply weaker today. AUD/USD is facing strong resistance above 0.80, a pattern that has been true for the last few years. The currency is weakening in spite of weakness in the US dollar and rising commodity prices. Unlike the euro and the British pound, which are benefiting from tighter monetary policy expectations, the Reserve Bank of Australia has not signaled any intention to hike interest rates. Looking at relative bond yields, 2-year US Treasuries now offer higher interest rates relative to its Australian counterpart. The Australian dollar is also being weighed down by the recent downturn in Chinese stock markets. While the Shanghai Composite has recovered some of its losses, the index has been selling off for most of this week. As China is Australia's leading export destination, AUD tends to track developments in Chinese financial markets. Our short-term and medium-term outlook on the currency remains bullish.    

AUD/USD is up and trading just above 0.80. EUR/AUD is up and trading above 1.5620. GBP/AUD is up and trading above 1.7770 

This is a fairly light week for economic data relating to the Australian dollar. NAB business confidence missed expectations (11 vs. 12 expected). The headline consumer price index (1.9% vs. 2.0% expected) and the trimmed mean CPI (1.8% vs. 1.9% expected) both missed expectations. The AiG performance of manufacturing index (58.7 vs. 56.2 prior) was strong while new building approvals were much lower than expectations (-20% vs. -8% expected). There were no economic data releases of any significance last week.

Updated 
Short term outlook
Neutral
Medium term outlook
Bearish

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