Australian GDP data adds to the aussie’s woes

The aussie can’t escape its fate, at least that’s what the last two weeks of price action would suggest. Granted, there have been numerous factors that have contributed to the sell-off over the last two, but even before that the reasons to short AUD were piling up. Thus far, nothing has been able to stop the sell-off. Late last week Bernanke came very close to promising the market that the Fed would turn on the printing press and last night ISM manufacturing data backed up calls for more QE, yet AUDUSD continues to sink. Overall, the aussie has been the worst performing G10 currency against USD.

The fundamentals aren’t looking good for AUD

However, when we look at the fundamentals of the commodity currency it is not hard to see why it has fallen so much and how it may have even further to sink. Today, for instance, Q2 GDP data out of Australia printed worse than the market was expecting at 0.6% q/q, whilst this isn’t overly bad, especially when you look at other advanced economies, it is only the last in a long line of disappointing data prints out of Australia.

Furthermore, the strongest support pillar for the Australian economy, the mining sector, has started to crack. Recent data out of China indicates Australia’s largest trading partner is growing slower than expected, namely the manufacturing sector which is the source of a significant amount of demand for Australian resources. Adding insult to injury, commodity prices continue to fall which, in turn, is eroding the profits of resource companies. And, the end result is a deteriorating terms of trade in Australia, which has been the backbone of AUD strength in the past. To top it off, the RBA is anticipated to cut, at the very least, another 50 bps of the official cash rate by the end of the year, which has the direct effect of making the aussie less attractive for capital investment.

Will AUDUSD sink even lower?

Price action over the last few weeks has seen AUDSD sink over 300 pips, including another collapse today on the back of safe haven flows to USD and disappointing GDP data. Moreover, the drive lower has been hard and fast which is a sign of strong/determined price action. Nonetheless, the biggest hindrance for AUDUSD bears is likely to be the fed. If Bernanke turns on the printing press next week then investors will likely start selling USD in droves.

Technically, the pair has broken through numerous key support levels, including one around 1.0225 overnight. The path is almost clear for a push toward parity, but this doesn’t rule out short-term price corrections on the way down (i.e. retracements). Looking at a longer time frame, the pair is not yet in oversold territory and is on a clear downward trend. It is, however, running into some resistance around its 100day sma, then beyond this level it may run into further resistance around the bottom of its daily Ichimoku cloud – currently around 1.0080.

The euro corrects lower

Midway through the session EURUSD dropped over 20 pips on the back of a risk-off move, which was exasperated by a slew of stop orders. The pair has been unable to retrace significantly in the lead up to a slew of PMI figures out of the Eurozone and German 10yr and 30yr bond auctions. The PMI figures may have a limited impact, as they are for the services sector, but if the debt sales don’t go well in Germany it could see the euro sink lower against the dollar. The ECB meeting tomorrow, however, may be the defining factor for the euro in the near-term.

Source: Forex.com

04.09.2012