The Australian dollar has been gradually weakening for the past three sessions. Given volatility in Chinese financial markets, the Aussie is weak as a result. As China attempts to reduce leverage within its economy, its central bank has been fighting a three-pronged battle against bond markets, stock markets and its currency. After failing to provide overnight financing on Monday, Chinese stock markets fell sharply while 10-year government bond yields hovered close to 4%. Fears regarding a deleveraging campaign were the primary culprit. This morning, the PBoC intervened with 250b of reverse repos (a means of injecting cash into the financial system). This has helped to quell the stock market sell off and the yuan. However, bond yields remain relatively high. Given significant volatility in China, the outlook for the Aussie remains tough.
AUD/USD is currently down and trading just above 0.7590. Looking at EUR/AUD, the pair is flat and currently just above 1.5650. The GBP/AUD is also flat and the exchange rate is currently above 1.7510.
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.
As the currency rebounds from oversold conditions, we are now neutral on the Australian dollar. Looking at a weekly chart, the Aussie is trading within normal conditions. Our analysis is based on various technical indicators.