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 Wednesday 02 March 2016

PM Bulletin: AUDUSD chart

 

 

Looking at this daily chart of the AUDUSD, we can see the steady decline of the Aussie dollar since the summer of 2011. Back then the AUDUSD briefly traded above 1.1000, but broke below 0.7000 in January this year.

Australia’s fortunes are inexorably linked to China and commodity prices, particularly iron ore. In the latter case it’s well known that these are currently trading around multi-year lows. In the former, it is certainly no secret that the Middle Kingdom’s economic slowdown is well underway. Just yesterday we saw the latest updates for China’s Manufacturing PMIs. These continue to show contraction. Meanwhile, the trend in the services sector (which policymakers’ are hoping will supplant manufacturing as China’s main economic driver) is negative, although it is still registering expansion.

Against this backdrop (and recent bouts of turmoil in China’s financial markets), it’s understandable that the Aussie dollar should struggle. Not only that, but the currency has had to fight against ongoing appreciation in the US dollar as the Federal Reserve tightens monetary policy while all around are adding to stimulus.

The Aussie dollar has bounced off the multi-year lows hit in mid-January. But this seems to be part of a general recovery in the “risk-on” trade rather than a vote of confidence in Australia or China. Like other currencies caught up in this trade, where it goes next will depend on how expansionary central banks turn out to be in the next couple of weeks. The market expects further monetary stimulus from the ECB, PBOC and BOJ. At the same time the US Fed will have to steer its usual path of being positive on US growth, while downplaying the chances of further tightening. If central bank disappoint, then expect the Aussie to make fresh lows.

 

Posted by David Morrison

Category: PM Bulletin


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