The Australian dollar is currently strengthening against all major currencies today. AUD is currently the strongest against the US dollar and the Japanese yen. Yesterday, the currency weakened against the US dollar as commodity prices fell sharply. While we have warned that the Australian dollar has been looking oversold lately, this is no longer the case following today's relief rally.
Looking at commodity prices, commodities such as industrial metals and copper are both higher today. As the US dollar gives up some of its gains after looking overbought, assets that trade inversely to the currency (such as commodities and AUD) are rising as a result. While today's rally will be welcome by Australian dollar bulls, the longer-term outlook remains bearish. The biggest risk to the currency remains China's ongoing slowdown. As we wrote in a recent commentary on the US dollar, there is a significant risk that China is forced to devalue the yuan as the country grapples with significant international US dollar loans. If the Chinese yuan depreciates significantly in the future, expect the Australian dollar to follow. Our short-term outlook and medium-term outlook on the Australian dollar remains bearish.
AUD/USD is up and trading just above 0.7520. EUR/AUD is down and trading above 1.5980. GBP/AUD is down and trading above 1.810.
Looking at this week’s Australian dollar economic calendar, this is a relatively important week thanks to an upcoming Reserve Bank of Australia interest rate decision. HIA March new home sales (-2% vs. -0.7% prior), and YoY TD Securities inflation for April (2% vs. 2.1% prior) decelerated from previous figures. YoY private sector credit for March (5.1% vs. 4.9% prior) were higher than previous figures. The performance of manufacturing index for April (58.3 vs. 63.1 expected) and the RBA’s commodity index (-1.4% vs. -4.2% expected) were both better than expected. The RBA kept interest rates and forward guidance unchanged. Tomorrow, we’ll see the AiG performance of services index (April), HIA new home sales (March), and building permits for March. We’ll also see the March trade balance. On Friday, we’ll see the RBA’s monetary policy statement. Last week, Q1 headline inflation was slightly below expectations.