Australian Dollar Under Pressure As Traders Look To Other Markets
Axi | May 01, 2017 10:45
Originally published by AxiTrader
The Australian dollar lifted a little to finish above 0.7480 on Friday night after the US dollar lost a little bit of ground when the 0.7% print for Q1 GDP was on the low side of the market's 1% estimates. It's traded down to a low of 0.7465 this morning on the back of the weaker than forecast Chinese services and manufacturing PMI data which was released over the weekend.
The official NBS measures showed manufacturing PMI fell to 51.2 in April. That was down from MArch's 51.8 and weaker than the markets forecast of a 51.6 print. On the services side of the economy, PMI printed at a solid 54 but again that was weaker than expected and down from the previous month's 55.1 print.
Both prints are still above the crucial 50 expansion/contraction line and neither would seem to threaten the government's growth targets for this year.
So why am I talking about Chinese data then? Because if traders are really negative about the Australian dollar this data provides another reason for them to sell if they wish.
And negative is exactly what Aussie dollar traders have been over the course of the past month - or a little more.
As the chart above shows the Aussie lost ground against the US dollar, euro, pound, and the yen last month. Certainly, it did better than the CAD and kiwi but it was an underwhelming performance in April which speaks not just to a lack of confidence in Australia but what looks like a reappraisal by investors of where the best place for their investments is.
The fall in the Aussie, like the Kiwi in particular, looks like it is portfolio based because CFTC data shows that the speculative accounts are still holding reasonably long positions right now.
The reason we may be seeing these portfolio flows is that with markets betting strongly - and the polls showing this bet is not misplaced - that the EU's existential threat has ended in the expected Macron French presidential victory.
That would normally see money flow toward Europe and away from Australia.
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That's particularly the case because there remain residual concerns about the outlook for the Australian economy and interest rates across the course of 2017 and 2018. European data, in contrast, has recently ben shooting the lights out. relatively of course
Relatively of course. But we know humans feel changes, not levels - and whatever the EMH would have you believe traders and investors are very human.
So the Aussie remains under pressure as we await what is a pretty important week for forex traders.
Domestically we get the release of the RBA decision on interest rates and governor's statement tomorrow afternoon. As I wrote on Friday, if the RBA wants to provide some non-housing biased stimulus for the Australian economy it has the perfect opportunity to knock the Australian dollar lower.
That is, with the Australian dollar already falling under its own weight the RBA could facilitate that process a little further by signalling in the governor's statement Tuesday and Statement on Monetary Policy Friday that the door to more interest rate cuts is slightly more ajar than the market realises.
Governor Lowe could add his voice to this conversation in his speech Thursday.
Looking at the charts the Aussie remains in its downtrend as traders await the next shoe to drop. Really though I could say shoes as it's the first week of the month and so there are plenty of domestic and offshore catalysts.
Here at home we have the monthly inflation data today, the RBA, trade, and HIA new home sales while offshore we have US PCE tonight, the raft of global PMI's, the FOMC decision and statement, and of course non-farm payrolls in the US on Friday.
But against this backdrop, the AUD/USD remains in a downtrend with parameters around 0.7560 and 0.7380 today. That seems like a reasonable range as we start the week.
Have a great day's trading.
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