The Australian dollar is up against all major currencies except the Canadian dollar today. The Aussie is the strongest against the Japanese yen and the US dollar. Yesterday, the currency sold off against the US dollar during European trading hours, but ended the day slightly higher. As the US dollar continues to look overbought, we expect AUD/USD to remain supported in the short-term.
Turning to recent developments, there are few notable updates from Australia today. Instead, the Australian dollar is trading as a function of other currencies and assets. Looking at Chinese financial markets, equity markets including Hong Kong's Hang Seng Index and the Shanghai Composite are both moving up today. China-sensitive commodities including copper and iron ore are also slightly higher. Given Australia's significant trading relationship with China, its currency tends to track economic developments in China fairly closely. While fears regarding the economic health of emerging markets continues to rise, there is some relief in store as the US dollar gives back its recent gains.
In recent history, US dollar strength has exposed the weakest emerging market countries such as Argentina and Turkey (who have suffered significant currency sell-offs). While the pain has not yet moved to stronger economies such as Saudi Arabia or China, traders remain wary of the risk of contagion. Our short-term outlook and medium-term outlook on the Australian dollar remains bearish.
AUD/USD is up and trading just above 0.7480. EUR/AUD is down slightly and trading above 1.5850. GBP/AUD is down slightly and trading above 1.8090.
This is a relatively light week for the Australian dollar economic calendar. The AiG performance of construction index for April (55.4 vs. 57.2 prior) decelerated from previous figures. MoM retail sales for March (0% vs. 0.3% expected) were below expectations. The annual budget release had a limited impact on the currency. Tomorrow, we’ll see March home loans and investment lending for homes. Last week, the Reserve Bank of Australia upgraded its outlook for growth and inflation over the coming two years.
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.