After rising sharply yesterday, the Australian dollar is selling off this morning. Earlier this week, we noted that currency pairs including AUD/USD have been looking overbought on daily charts. As the currency continues to look overbought, our view is that the Australian dollar is due for a short-term correction. In recent news, trade balance figures announced today missed estimates by a big margin. Relative to estimates for a surplus of A$550m, the trade balance was instead -A$628m. The $1b+ miss was driven by weak coal and grain exports. The Australian Bureau of Statistics also revised October's surplus to a deficit. Thanks to China's ongoing war on pollution, demand for coal is falling. The weak trade balance figures will lower Q4 GDP growth figures and the future outlook for growth in 2018. As we have written before, the fortunes of the Australian dollar are expected to decline given its significant trading relationship with China. Our medium-term outlook remains bearish.
AUD/USD is currently down and trading just above 0.7840. EUR/AUD is currently up and trading above 1.5360. GBP/AUD is up and trading above 1.7260.
This is a very light week for economic data relating to the Australian dollar. The AiG services index was higher than the previous print (52 vs. 51.7 prior). The overall trade balance missed estimates by a wide margin (-$628m vs. $550m expected). Prior to the holidays, the RBA's minutes suggested a positive economic outlook, while noting weakness in consumer spending.
As the Australian dollar strengthens on good economic data, we are upgrading the currency to neutral. Looking at a daily chart of the Aussie, the currency is now looking overbought. This is based on various technical indicators.
As the currency weakens on lower rate hike expectations and slow growth, we are now bearish on the Australian dollar in the medium-term. Looking at a weekly chart, the Aussie is trading within normal conditions. Our analysis is based on various technical indicators.