The Australian dollar is currently mixed. The currency is trading sideways against the US dollar and the British pound, strengthening against the euro, while weakening against the Japanese yen. Yesterday, the currency strengthened versus most major currencies as the US dollar weakened. After looking oversold earlier in the week, AUD was due for a rebound. Following recent strength, the currency is no longer looking oversold.
Turning to recent news, the RBA has improved its forward guidance by lifting its growth and inflation forecasts. GDP growth is now expected to accelerate to 3.25% by the end of 2018, while 2018 inflation is likely to rise to 2% (versus a previous forecast of 1.75%). While the Bank has not committed to further rate hikes, the changes are a sign that a rate hike is more likely this year. While the Australian dollar enjoyed a minor bounce on the news, the currency has since given up much of its gains.
While domestic developments have helped the currency, today's sell-off in Chinese financial markets is hurting the currency. Hong Kong's Hang Seng Index is currently weakening, while China-sensitive commodities such as copper are also selling off. With US-China trade negotiations in the background, the Australian dollar is particularly sensitive to any sign of worsening trade tensions. While reports by Xinhua news (China's national news agency), suggests that the two sides have reached agreements on some issues, significant differences remain. Our short-term outlook and medium-term outlook on the Australian dollar remains bearish.
AUD/USD is flat and trading just above 0.7520. EUR/AUD is flat and trading above 1.590. GBP/AUD is flat and trading above 1.8020.
Looking at this week’s Australian dollar economic calendar, this is a relatively important week thanks to an upcoming Reserve Bank of Australia interest rate decision. HIA March new home sales (-2% vs. -0.7% prior), and YoY TD Securities inflation for April (2% vs. 2.1% prior) decelerated from previous figures. YoY private sector credit for March (5.1% vs. 4.9% prior) were higher than previous figures. The performance of manufacturing index for April (58.3 vs. 63.1 expected) and the RBA’s commodity index (-1.4% vs. -4.2% expected) were both better than expected. The RBA kept interest rates and forward guidance unchanged. The AiG performance of services index for April (55.2 vs. 56.9 prior) decelerated from previous figures while YoY building permits for March (14.5% vs. 10.8% expected) were ahead of expectations. The March trade balance ($1,527m vs. 650m expected) was also ahead of expectations. The RBA’s monetary policy statement included improved guidance for 2018. Last week, Q1 headline inflation was slightly below 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.