Australian dollar influenced by global backdrop

It’s hard to envisage an end to the Aussies aggressive downside at the moment, as external forces continue to drive the currency. Trade discussions between China and the US remain one of the biggest drivers here as the reliance on US dollar moves means that the greenback’s strength is doing a lot of damage.

It’s hard to envisage an end to the Aussies aggressive downside at the moment, as external forces continue to drive the currency. Trade discussions between China and the US remain one of the biggest drivers here as the reliance on US dollar moves means that the greenback’s strength is doing a lot of damage. The issue here is that there is no sign that this could be over anytime soon, and the likelihood is more tariffs before any meaningful talks. 

Domestically there has been issues as well, with a number of retail banks raising standard variable mortgage rates over the last few weeks. With banks raising rates without an actual move in policy rates, it means some of the work of the central bank is being done. The higher SVR’s therefore mean Aussie rallies on the back of hawkish policy rhetoric are likely to be muted in the near term. The RBA are yet to comment on the subject but with expectations on rate hikes already not on the horizon until well into 2019, this could see these now move to the back end of 2019. 

From the technical side AUDUSD looks weak, with a continued textbook downtrend on the daily timeframe. Despite the domestic problems, the issues for the Australian dollar are mainly about the global backdrop, meaning that any move in the major Aussie pairs has nothing to do with Australian news flow. This is evident after last week’s bumper GDP reading, go little to no reaction on the longer term plays. We must look at long term time frames for any real technical aspect, and on the weekly the break below 0.7155 has had us looking for more downside levels. Stops going below this level will likely trigger another steady move lower with us having to look as far down as 0.7000 for the next big support. With more tariffs to come from the US and China, this could happen sooner rather than later, so it’s not a particularly brave to call 0.7000.