The Australian dollar broke support last night and headed into the mid-76ers:
The key up trend line is still about one cent lower. That’s providing succor to some rusted-on bulls, via Kit Jukes at Societe General:
In both Asia in February, and in Spain last week, I have been taken to task for expecting the AUD to rally (modestly) from here. But it’s holding above 0.77, remains in a long-term uptrend, and has weathered both weaker commodity prices and a collapse in expectations of a 2018 RBA hike. It looks like a good buy with a 0.77 stop to me, here.
AUD tends to benefit during global cyclical upswings due to its positive link to base metal prices. A second related point is Australia’s significant trade ties with China, making AUD a proxy for Asian EM exposure. While inflation pressures remain subdued, the mining sector investment bust is now mostly behind us and employment growth has been very strong in the past year.
None of which is current. The jobs boom is fading to something more subdued and the RBA is not going to hike. At best it will be stable and there’s a growing risk of a cut as China slows and bulk commodities crash.
The major developed market crosses have already broken down, especially EUR, which is at the precipice:
In sum, the AUD is the worst performing DM currency this year and with bulk commodities set to fall much further into mid-year, plus the yield differential set to widen even further, there is only one way for the AUD to go and it ain’t up:
We see 70 cents by year end.
FYI, MB has launched a new Australian dollar forecast index which will be updated regularly to keep you abreast of market outlooks. See it here.
