The Australian dollar is mostly stronger this morning (particularly against the US dollar and the pound) but is selling off against the Japanese yen. Yesterday, the Aussie began selling off after China changed the mechanism by which it fixes the daily exchange rate of the Chinese yuan. Fears of renewed Chinese yuan weakness following the elimination of the 'counter-cyclical factor' have failed to materialize as the currency is fairly stable this morning. Looking at more recent Chinese data, PPI was slightly ahead of expectations (4.9%) while CPI was slightly below expectations (1.8%). Ongoing stability in Chinese financial markets is keeping the Australian dollar supported for now. Later today, we will upgrade our medium-term outlook on the currency to neutral thanks to recent strength. Over the longer-term, we continue to believe that the Australian dollar will weaken as China enters its latest downturn.
AUD/USD is currently down and trading just above 0.7830. EUR/AUD is currently flat and trading above 1.5240. GBP/AUD is down and trading above 1.7250.
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 rebounds thanks to strong global growth, we are now neutral 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.