Fundamental Forecast for Australian Dollar: Bearish
- AUDUSD Threatens Major Channel Break
- AUDUSD: Key Channel on the Verge of Caving
- Speculative Australian Dollar Longs at Highest Level Since March
The Australian dollar slipped to a fresh monthly low of 1.0374 going into the last days of August and the high-yielding currency may continue to give back the advance from earlier this year as the fundamental developments on tap for the following week are expected to show a slowing recovery in the $1T economy. Indeed, building activity in Australia is projected to expand at a slower pace during the three-months through June, while business investments are expected to grow 3.0% after expanding 6.1% in the first-quarter.
Nevertheless, the Reserve Bank of Australia policy meeting minutes struck a rather upbeat tone for the region as the central bank anticipates domestic growth to offset the slowdown in the global economy, and it seems as though the board will stick to its wait-and-see approach over the coming months as Governor Glenn Stevens expects growth to remain ‘ close to trend.’ However, Mr. Stevens did take note of the persistent strength in the local currency, stating that the Australian dollar seems a ‘bit on the high side,’ and warned that the ‘peak of the resource investment boom as share of GDP – the highest such peak in at least a century – will occur within the next year or two’ in light of the slowdown in global trade. Although the central bank head remains ‘cautiously optimistic’ towards the economy, the RBA may have little choice but to carry out its easing cycle throughout the second-half of the year as China – Australia’s largest trading partner – faces a greater threat for a ‘hard landing.’ According to Credit Suisse overnight index swaps, market participants still see the RBA lowering the benchmark interest rate by at least 50bp over the next 12-months, and the AUDUSD may come under increased pressure next week should the economic docket spur increased bets for lower borrowing costs.
As downward trend carried over from 2011 remains intact, the AUDUSD certainly looks as though it’s carved out a lower top around the 1.0600 figure, and we will maintain our bearish forecast for the AUDUSD as the relative strength index continues to come off of overbought territory. As a result, we would like to see a break and a close below the 23.6% Fibonacci retracement from the 2010 low to the 2011 high around the 1.0370 figure as it holds up as interim support, but the AUDUSD may consolidate over the coming days as currency traders turn their attention to the Jackson Hole Economic Symposium on tap for next week. – DS