by Chris Becker
Last night the US Dollar index (DXY) was largely unchanged mainly due to the lack of any catalysts because of Trump’s shutdown. The much watched December US retail sales were postponed but both Aussie and Kiwi lost against King Dollar, down nearly 0.4% or so each. Midday in the Asian session, the Australian dollar is slipping against all the majors except Kiwi, ready to crack below the 71.60 level and not helped by the recent home loan and consumer sentiment data:
The Kiwi cross is growing through, ready to get back to the pre flashcrash level and indeed looking like bottoming out of a weekly downtrend:
There’s more bearish calls out for Aussie, with DBS Bank and Westpac both forecasting the RBA to hold throughout 2019 while the Fed holds to two more rate rises. The impact on the Aussie is thus obvious:
“AUD/USD will remain weak and trade in a lower 0.65-0.70 range in 2019 on a further deterioration in Australia’s negative interest rate differential against the US. We see two increases in the Fed Funds Rate totalling 50 bps to 3% or double the level of its Australian counterpart,” warns Philip Wee, a currency strategist at DBS Bank in Singapore.
Wee, like Westpac, also says the RBA will be forced to downgrade its growth forecasts next month. He forecasts the economy to slow over the next two quarters, taking the annualised pace of GDP growth below 3% temporarily, but the RBA’s current forecasts imply an annualised growth rate of 3.5% this year.
“Falling house prices have led consumers (especially heavily indebted mortgage holders) to tighten their wallets and led to a slump in construction activities,” Wee writes, in a briefing to clients. “The negative spill-over effects into business confidence and investment expectations were evident in recent surveys.”
Meanwhile, the PBOC is back to a stronger fix, pushing offshore trading in Yuan back down below 6.76 again with no new news regarding the US/China trade talks:
