After making small gains earlier today, the Australian dollar is currently weakening against all major currencies except the British pound. Yesterday, the currency was particularly weak against the US dollar. The currency sold off alongside emerging market currencies such as the Chinese yuan as the US dollar broadly strengthened.
While AUD/USD was higher this morning, the pair is now weakening thanks to a sell-off across Chinese financial markets. Both Hong Kong's Hang Seng Index and the Shanghai Composite are currently trading lower. Prices of industrial metals have also been falling since late last week. Looking at the GSCI industrial metals index (a broad measure of industrial commodity prices), the index is down sharply today. Given Australia's significant trading relationship with China, the Australian dollar is highly sensitive to Chinese growth expectations. As Chinese economic growth decelerates, AUD is weakening as a result. Our short-term outlook and medium-term outlook on the Australian dollar remains bearish.
AUD/USD is down slightly and trading just above 0.7560. EUR/AUD is up slightly and trading above 1.6090. GBP/AUD is flat and trading above 1.840.
Turning to economic data and events from Australia this week, traders will be watching upcoming inflation figures. RBA Assistant Governor Kent downplayed fears regarding interest-only mortgages. The Q1 consumer price index (1.9% vs. 2.0% expected) was below expectations, while the RBA’s trimmed mean CPI (1.9% vs. 1.8% expected) was ahead of expectations. Export (4.9% vs. 4.1% expected) and import prices (2.1% vs. 1.3% expected) were both ahead of expectations, helping the inflation outlook. Tomorrow, we’ll see producer prices for Q1. Last week, changes in employment missed expectations.
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.