Australian Dollar Relief Rally: But GBP/AUD and AUD/USD Forecast Lower AUD in Coming Days
The Australian dollar should remain under pressure against both the British pound and US dollar as the global financial and commodity market backdrop prove unsupportive.
The commodity dollar index has been under pressure amidst conditions of oversupply in global commodity markets. The supply tap remains open while global demand, notably that of China, wanes.
Therefore global market conditions will be central to the Australian dollar moving forward.
We are seeing the Australian, New Zealand and Canadian dollars correcting higher on Tuesday the 19th as buyers step into grossly oversold markets.
The recent selling pressure was notable and the potential for a 'snap back' has been growing for days - just as the further you pull an elastic band the faster and greater the recoil.
"The softness of the Chinese data or the corrective tone to global markets? I guess we're having a pause from the bear market which has engulfed risk this year, but that there is no reason to get optimistic that the worst is behind us. In G10 FX, AUD and NZD can bounce along with Asian currencies, while the yen softens," says Kit Juckes at Societe Generale.
The Chinese data showed industrial production growth slow to 5.9% y/y from 6.2%, fixed investment to 8.3% y/y from 10.2%, GDP to 6.8% y/y from 6.9%, and retail sales slowed to 10.7% from 11% in real terms.
"These are all continuations of existing trends but they simply highlight the challenges policymakers face," says Juckes.
The trend lower in commodities and global markets, and therefore the Aussie dollar, are ultimately likely to continue if you don't believe that we have seen the end of the China story.
Latest Pound / Australian Dollar Exchange Rates
  | Live: 2.0099▲ + 0.05%12 Month Best:2.1645 |
*Your Bank's Retail Rate
| 1.9415 - 1.9496 |
**Independent Specialist | 1.9817 - 1.9898 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
Inflation Data Boosts AUD
The Aus dollar enjoyed some respite at the start of the new week after the release of TD Securities' inflation index rose to 2.0% in December from 1.8% in the previous month as a weaker AUD allowed import inflation.
"We have the feeling that the AUD sell-off is overdone, fueled by the fear, which has taken over global markets, dragging investors away from fundamentals. A period of stabilisation - if not a rebound - is increasingly likely especially given the positive signals sent by the Australian economy over the past few weeks," says Arnaud Masset at Swissquote Research.
On Tuesday there is another fairly important release in the form of Westpac Consumer Confidence, which previously gave a print of -0.8%.
This may garner some interest according to NBA:
“Consumer confidence is around long-run average levels for both the weekly and monthly measures.
“Last week the weekly measure fell slightly on recent ructions in global markets, and these measures will be noted to see to what extent global developments are affecting sentiment”
Then on Wednesday there is Chinese data which is the most significant.
Although not much change is expected from GDP which normally adheres closely to estimates analysts will be focusing primarily on Industrial Production and Retail Sales to assess how well the economy is recalibrating to a consumer led model – and if it is not then the aussie could fall further.
Technical Levels to Watch
Australian to US Dollar Forecast – Hitting Downside Targets
The Aussie has surpassed its target calculated by extrapolating the height of the triangle by 61.8%.
It has also breached below the September 2015 multi-year lows.
The pair could still move even lower despite having achieved the minimum price expectation.
MACD also continues to signal further downside by thrusting steeply down below the zero-line.
A break below 0.6840 would provide confirmation of a continuation lower, to a possible end target at 0.6775, just above the 100% Fibonacci extension of the height of the triangle.
Pound to Australian Dollar Forecast – Top of Channel
The pound to Aussie dollar exchange rate has been consolidating at the top of a descending channel.
MACD has crossed the zero line after converging bullishly on the last swing low, suggesting further upside and lending credence to the potential for a break out above the channel.
A break clear above the 200-day MA, confirmed by a breach of 2.1100 would also probably confirm a complete breakout from the descending channel, signalling a new more bullish environment and a probable move up to an initial target at 2.1200 where the R2 Monthly Pivot is situated.
Above that there might even be further gains to an eventual target at 2.1750.
For more down-side, I would want to see a break below 2.0450, which would probably signal a move down to the lows of the channel at 2.0200.
