The Australian dollar is currently strengthening against all major currencies. AUD is the strongest against the Japanese yen and the US dollar. Yesterday, the currency ended the day higher against most major currencies (such as the euro and the yen). After Trump appeared to backtrack on his threat of missile strikes against Russian operations in Syria, traders bought riskier assets such as commodities, equities and the Australian dollar.
Turning to recent data, there were limited reactions in the Australian dollar following good Chinese trade data. According to the Chinese National Bureau of Statistics, year-over-year import growth was 14.4% last year (versus 10% expected). The currency also didn't react to news that Trump was prepared to escalate trade actions against China (a move we covered in our US dollar daily update). Instead, today's significant strength in the Australian dollar is more likely the result of rising Australian bonds yields. 10-year Australian government bonds are currently yielding 2.744% (up from 2.68% yesterday). While the Australian dollar has weakened alongside falling rates in recent history, the big move up in yields is helping the currency today.
Looking at other news, the RBA released its financial stability review earlier today. While Australian banks remain well capitalized, the document notes that consumer debt-to-income remains elevated. Other issues include China's financial stability given the country's significant shadow banking sector. While there are no issues on the immediate horizon, high debt levels remain a significant concern for the RBA. Our short-term outlook on the Australian dollar is neutral, while our medium-term outlook remains bearish.
AUD/USD is up today and trading just above 0.7790. EUR/AUD is down and trading above 1.5820. GBP/AUD is flat and trading above 1.8310.
Looking at economic data from Australia this week, we'll see sentiment data and housing investment numbers. The AiG performance of construction index accelerated from previous figures (57.2 vs. 56 previously). NAB business confidence for March (7 vs 12 expected) was significantly below estimates. Westpac consumer confidence (-0.6% vs. 0.2% previous) decelerated from previous figures. RBA Governor Philip Lowe stated that rates are more likely to stay on hold. Consumer inflation expectations for April (3.6% vs. 3.7% prior), February investment lending for homes (0.5% vs. 1.4% prior) and February home loans (-0.2% vs. -0.6% expected) decelerated from previous figures. Last week, the RBA kept rates on hold.
As the Australian dollar runs out of steam, 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.