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Aussie Dollar Risk-Off Decline Unfazed by Trade Balance Figures

Aussie Dollar Risk-Off Decline Unfazed by Trade Balance Figures

Daniel Dubrovsky, Strategist

Talking Points

  • The Australian Dollar briefly rallied as trade balance figures crossed the wires
  • Net export deficit narrowed to –AUD1579m compared to –AUD2100m expected
  • Risk-off decline amplified as BOJ member showed pessimism on policy approach

Having trouble trading the Australian Dollar? This may be why.

The Australian Dollar briefly climbed against its major counterparts after Australia’s trade balance figures crossed the wires and beat expectations. Heading into the announcement, the risk-sensitive currency was following Asian shares lower.

The net export deficit narrowed to -AUD1579m in April from –AUD1971m in March, lower than the –AUD2100m estimated by economists. This was also the smallest deficit since February 2015. Exports as whole increased by 1 percent and imports declined by 1 percent. On Monday, net exports as a percentage of GDP rose to 1.1 percent in the first quarter of 2016 from 0.0 percent in the fourth quarter of 2015.

Despite the figures beating estimates, the risk-sensitive Aussie Dollar resumed its decline against its major counterparts shortly afterwards. This appeared to happen as Bank of Japan’s policy board member Takehiro Sato took center stage and expressed his views on Japan’s economy and monetary policy. Here is what he said:

Comments from Bank of Japan’s Takehiro Sato:

  • Japan’s economy is so fragile
  • My price outlook is lower than the BOJ’s median
  • Road to reaching 2% price target ‘will be long’
  • Have to reform policy framework to longer-term initiative
  • Monetary base expansion and negative rate combination not sustainable
  • Negative rates could affect financial system stability
  • Unnecessary to reach 2 percent target at all costs
  • Doubt if negative rates will stimulate capital spending
  • My sincere hope is that BOJ policy will be flexible

As the Bank of Japan board member presented his speech, Nikkei 225 and S&P 500 futures amplified their decline in early Asia trade. This saw the risk-sensitive currencies, such as the Australian Dollar, declining across the board.

Meanwhile, the DailyFX Speculative Sentiment Index (SSI) is showing a reading of 1.99 following the announcement, meaning that for every trader short the AUD/USD, there are 1.99 on the long side. The SSI is a contrarian indicator, implying further AUD/USD weakness ahead.

Want to learn more about the DailyFX SSI indicator? Click here to watch a tutorial.

Aussie Dollar Risk-Off Decline Unfazed by Trade Balance FiguresAussie Dollar Risk-Off Decline Unfazed by Trade Balance Figures

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.