Australian dollar under renewed pressure on 'exotic payout'
Currency flow analysts at FXMarketAlerts have cited an exotic payout as being a key driver behind today's Australian dollar selloff:
"We see AUD/USD coming under a little pressure in the early exchanges in London, and this may partly be down to the .9200 Euro style digital for today's NY cut, which requires the underlying rate above this strike price in order to receive the Aud 5mln payout.
"Session highs for EUR/AUD seen as a result, pushing back up through 1.4300, while AUD/CAD looks to be eyeing a move back under .9500, though still has some way to go in order to test last week's mid .9300 base; levels last seen in Aug 2010."
Commercial selling by Sydney banks
FXMarketAlerts also suggest commercial currency sales could be behind today's Aussie dollar sales:
"Good to watch for any Sydney banks, Aussie names selling - RBA commercial selling interest - to cap AUD? RBA sold almost AUD1bln in June - up sharply from May 490m, April 382m, March 577m.
"Could be indication that RBA wants to see lower AUD - more stimulus to rebalance the economy. And not just by cutting Cash Rate alone? So 2-prone attack to try to cushion the economy, currently in transition from the mining to other sectors. Market pricing in 62% chance of August 6 rate cut. Australia economy faces challenges as seen from Treasurer Bowen comments - signalling a possibility of recession?"
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To recap, Australia Treasurer Chris Bowen says China resources investment boom is over.
Bowen believes resources investment to peak this financial year. At that point, resource investment will start to detract from Australian economic growth.
No doubt, the next few years will be challenging for Australia and this is now being reflected in the country's currency. Nevertheless, the Australian economy is strong and resilient so expect more volatility in terms of trade and currency.
It is also worth pointing out that it is interesting to note that RBA has upped AUD sales in June, despite AUD falling to 3-year lows.
"Good to watch for any further RBA commercial offers in AUD - as RBA still wants to see lower AUD? AUD further weighed by fall in NAB confidence. AUD/USD hit lows of 0.9194, bids at 0.9180-90, stops below 0.9180/50. NZD at 0.7880-83, weighed by fall in NZ confidence and lower AUD, but supported by AUD/NZD sales. Kiwi offers 0.7910-20, bids at 0.7850-60," says FXMarketAlert.