The Australian dollar is slightly weaker today after falling last Friday. The currency is, however, strengthening against the US dollar. Earlier today, the PBoC did not make any overnight cash injections (China's central bank sometimes injects cash into the economy when interest rates rise). As a result Chinese 10-year bond yields are just under 4%. Given the strong trade relationship between Australia and China, AUD and Australian bond yields tend to follow events in China. Looking at Australian bond yields, 10-year interest rates have strengthened and are currently trading at 2.533%. As Australian yields rise relative to other major economies, the currency is strengthening as a result.
AUD/USD is currently up and trading just above 0.7620. Looking at EUR/AUD, the pair is flat and currently just above 1.5670. The GBP/AUD is also flat and the exchange rate is currently above 1.750.
This is a very light week for economic data releases relating to the Australian dollar. On Thursday, we'll see HIA New Home Sales and AiG Performance of Manufacturing Index. Last week, the RBA’s meeting minutes suggested "considerable uncertainty" regarding future inflation and cautioned against strength in the currency.
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.