After staging a rebound yesterday, the Australian dollar is selling off today. After the S&P 500 ended the day higher yesterday, the stock market rout appeared to come to an end. Today, Asian stock markets including Japan's Nikkei 225 and Hong Kong's Hang Seng Index were fairly weak. As such, there are lingering fears that the stock market rout may continue. As a commodity currency, the Australian dollar is fairly sensitive to risk appetite and tends to weaken during downturns. This explains why the currency has fared so poorly against traditional safe havens such as the US dollar and the Japanese yen in recent days. Turning to data, the AiG construction index accelerated from the previous month, but this had a limited impact on the currency. For now, AUD trading will continue to be driven by risk sentiment. We have downgraded our short-term outlook on the Australian dollar to neutral, while the medium-term outlook remains bullish.
AUD/USD is down and trading just above 0.7860. EUR/AUD is up and trading above 1.5680. GBP/AUD is up and trading above 1.7680.
Looking at economic data this week, markets will be watching retail sales and an upcoming RBA rate decision. The AIG services index was ahead of the previous figures (54.9 vs. 52 previous). MoM retail sales (-0.5%) and the trade balance ($-1,358m) were both significantly below estimates. The RBA kept rates on hold, while suggesting that inflation was set to remain weak. The Bank did state, however, that employment was likely to improve. The AiG construction index accelerated from previous figures (54.3 vs. 52.8 prior). Tomorrow, we'll get home lending figures. Last week, headline and trimmed mean inflation was slightly below expectations.
As the Australian dollar runs out of steam, we are downgrading the currency to neutral. Looking at a daily chart of the Aussie, the currency is trading within a normal range. This is based on various technical indicators.
As the Australian dollar rebounds, we are now bullish 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.