The Australian Dollar is set to face selling pressure as an uneventful economic calendar yields to a reversal in risk appetite across financial markets. Short-term studies reveal that a trade-weighted average of the Aussie’s value against a basket of top currencies is now 97.8% correlated with the MSCI World Stock Index.
[B]Australian Dollar Vulnerable As Risk Appetite Abates[/B]
[B]Fundamental Outlook for Australian Dollar: [/B][B]Bearish[/B]
- Australia’s Industrial Output, New Orders To See First Gains in 9 Months
- RBA Says Interest Rate Changes Losing Effect on Lending Costs, Sells A$1.4 in FX Market
- Australian Leading Index Rose for 2nd Month But Rate Cuts Still On, Says Westpac
- RBA Meeting Minutes Hint Australia May Cut Interest Rates Again This Year
The Australian Dollar is set to face selling pressure as an uneventful economic calendar yields to a reversal in risk appetite across financial markets. Short-term studies reveal that a trade-weighted average of the Aussie’s value against a basket of top currencies is now 97.8% correlated with the MSCI World Stock Index. For its part, the MSCI metric looks to be carving out a double top at resistance marked by the November 2008 swing high having reversed lower to break out of a rising channel that has guided prices higher since March. This suggests that continued weakness in risk appetite looms ahead, threatening to bring the Australian unit along for the ride.
The economic data docket is noticeably bare. May’s New Motor Vehicle Sales report may extend the shallow rebound from March’s record low for a second consecutive month, but tentative signs of firming demand have largely been discounted in the exchange rate after output unexpectedly grew in the first quarter, driven by the government’s aggressive efforts to replace private demand with hefty public-sector handouts. The real question going forward will be whether Australia is able to sustain positive momentum after the flow of stimulus cash dries up, and current labor market trends seems to point to lackluster spending in the months ahead. The same pattern is likely to hold for April’s Conference Board Leading Index: the metric rose to the highest level in three months in March and further strengthening is possible on the back of the government’s initiative, but the ability of these efforts to support a return to self-sufficient growth remains uncertain. – IS