The Australian dollar is sharply lower today, as recent economic data suggests weak growth this year. Looking at AUD against its major peers, the currency is weakest against the US dollar, euro and the Japanese yen. Earlier today, private capital expenditure missed estimates by a wide margin. The RBA's Index of Commodity Prices also missed consensus estimates by a significant degree. As we wrote in a recent commentary, the value of the Australian dollar is heavily influenced by commodity exports to China. Falling commodity prices and slowing capital expenditures suggest a less robust outlook for the country's commodity sector. The Australian dollar is also being weighed down by falling relative interest rates. While the currency has historically offered higher interest rates, 10-year Australian government bonds are now yielding less than 10-year US Treasury bonds. As the currency loses its yield advantage, holding the Australian dollar is relatively less attractive. Our short-term outlook on the currency remains neutral, while our medium-term outlook is bullish. As momentum wanes, we expect to downgrade our outlook over the coming days.
AUD/USD is down sharply today and trading just above 0.7710. EUR/AUD is up and trading above 1.5790. GBP/AUD is up and trading above 1.7790.
This is a fairly light week for economic data relating to the Australian dollar. YoY private sector credit (4.9% vs. 5% expected) was slightly below estimates. AiG performance of manufacturing figures (57.5 vs. 58.7 prior) were below the previous print. Private capex (-0.2% vs. 0.9% expected) and the RBA’s commodity index figures (-1% vs. 4.7% expected) were significantly below estimates. Tomorrow, we'll get HIA new home sales. Last week, the wage price index was slightly ahead of consensus estimates.
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.