After heading into overbought territory last week, the Australian dollar is weakening this morning. The currency is even selling off against the yen, which is fairly weak against most other currencies. Last week, we warned that the currency was looking fairly overbought (and due for a short-term correction) looking at technical indicators. Interestingly, futures speculators are net short AUD, despite recent strength - we covered this issue in more depth in a recent commentary on speculator positioning. While the Aussie has enjoyed a good rebound since mid-December, we believe that the currency is headed south over the longer-term. While the Australian dollar has been in a bull market since 2016 (following an upturn in China's economy), the currency is more likely to suffer as China enters its latest downturn. Our medium-term outlook remains bearish.
AUD/USD is currently down and trading just above 0.7830. EUR/AUD is currently up and trading above 1.530. GBP/AUD is up and trading above 1.7280.
This is a very light week for economic data relating to the Australian dollar. The AiG performance of construction index was lower than the previous print (52.8 vs. 57.5 prior). On Thursday, the most important day, we'll see retail sales. While the consensus forecast is 0.4% (month-over-month), retail sales numbers have been fairly disappointing in recent history. Last week, the trade balance missed estimates by a wide margin and Australia registered a net trade deficit for October and November.
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.