The Australian dollar rose yesterday and is flat this morning. We continue to believe that the currency is oversold in the short-term and due for a rebound. Looking at data, strong Chinese producer prices (6.9% vs. 6.6% expected) was supportive for the currency as Chinese inflation accelerates. However, domestic economic data continues to disappoint. The Aussie weakened slightly after very poor housing finance growth figures were announced earlier today. In recent weeks, the currency has been supported by Chinese data relating to inflation and exports while falling on domestic data such as retail sales and housing finance. Our medium-term outlook on the currency remains bearish.
AUD/USD is currently trading just above 0.7680. Looking at EUR/AUD, the pair is currently just below 1.510. The GBP/AUD exchange rate is currently above 1.7090.
This is another pretty light week for the Australian dollar. On Monday, TD Securities year-over-year inflation came in at 2.6% (vs. 2.5% previously). The RBA maintained its cash target rate at 1.5%. The AiG Performance of the Construction Index (53.2 vs. 54.7) was lower than the last print. Housing Finance numbers were far below expectations (-2.3% vs. 3% expected) as investors pull back from real estate. Finally on Friday, we’ll get a statement from the RBA on monetary policy. Last week, retail sales figures widely missed expectations.
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.