The Australian dollar has been very weak today, after poor inflation figures were announced. The currency is selling off against all major currencies including the US dollar, euro and the pound. Despite expectations for year-over-year inflation of 2%, the latest data suggests that inflation is only 1.8%. As this lowers expectations for a future interest rate hike, the Australian dollar is selling off as a result. While the currency was supported by strength in the Chinese yuan last week (China is Australia's largest trading partner), this week the yuan has been fairly weak. Our short-term and medium-term outlook on the currency is currently bearish.
AUD/USD is currently trading just above 0.7710. Looking at EUR/AUD, the pair is currently just above 1.5260. The GBP/AUD exchange rate is currently above 1.70.
This is a fairly light week for the Aussie in terms of economic data. Today, we saw year-over-year inflation figures miss expectations (1.8% vs. 2.0% expected). The currency sold off sharply after the data was released. Tomorrow, RBA Assistant Governor Debelle is expected to speak, while the RBA will release its annual report on Friday. Producer prices will also be released on Friday. Last week, RBA minutes suggested that monetary policy remains in neutral.
After weakening sharply in the latter half of October, we are downgrading the Australian dollar further to bearish. The currency is weak thanks to lower-than-expected inflation rates and falling Australian bond yields. 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.