The Australian dollar is mostly weaker this morning. Looking at AUD versus its global peers, the currency is either flat or weakening against all major currencies. While the currency began the day by strengthening against most major currencies (following unexpectedly strong building approvals data), the currency is now selling off. The Australian dollar is currently tracking the Chinese yuan lower. The yuan is weaker after the People's Bank of China announced that it is eliminating the counter-cyclical factor in determining the daily fixing according to Bloomberg. While the measure has always been poorly understood by markets, it was interpreted as a means to keep the yuan strong against the US dollar. Now that the factor has been eliminated, the yuan is selling off as a result. As China is the country's largest destination for exports, AUD tends to closely track the fortunes of the yuan. Our medium-term outlook remains bearish.
AUD/USD is currently down and trading just above 0.7820. EUR/AUD is currently flat and trading above 1.5250. GBP/AUD is down slightly and trading above 1.7270.
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.