The Australian dollar weakened yesterday, and continues to fall this morning. We wrote yesterday that the Aussie is likely to follow the Chinese yuan. As the yuan sold off in the last two days, the Australian dollar has also been weak. RBA minutes released earlier today contained few surprises - while the Bank remains optimistic on Australia's economy, there is no urgency to raise rates in the short-term. Looking at inflation, the Bank expects subdued inflation to continue in September. The Bank is not expected to consider raising rates until 2018, assuming that economic growth remains strong.
AUD/USD is currently trading below 0.7840. Looking at EUR/AUD, the pair bounced back yesterday, and is currently below 1.500. Finally, the pound is up against AUD this morning, having also strengthened yesterday. The GBP/AUD exchange rate is currently above 1.690.
This is a fairly light week for the Aussie in terms of economic data. RBA minutes suggest that monetary policy remains in neutral. The Bank sees a strong economy but subdued inflation. On Wednesday, we’ll get changes in employment and the unemployment rate. Lower-than-expected numbers will drive down already low rate hike expectations. Last week, consumer and business confidence surveys as well as housing loans numbers were above expectations.
After a strong performance in the second week of October, we are upgrading the Australian dollar to neutral. The currency is rebounding thanks to strength in the Chinese yuan (China is the country's biggest trading partner) and the broader Chinese economy. Looking at a weekly chart, the Aussie has re-entered normal trading conditions having been overbought for most of September. Our analysis is based on various technical indicators.