James Hughes
James Hughes

Aussie dollar remains under pressure

By James Hughes, Chief Market Strategist at AxiCorp Financial Services Pty Ltd

A major weakness in the Australian economy currently is the housing market, which continues to show steep declines. The Aussie housing price index has dipped below 150 for the first time in two years. This has pilled the pressure on the currency, as there are now expectations that it could prompt the Reserve Bank of Australia into cutting rates, lower interest rates have a negative impact on the currency.
With housing a big worry, the monthly home loan data will be closely watched by both investors and the RBA on Tuesday. Last month’s huge fall of -8.2% will have many expecting a further decline, expectations are that we see another fall of -2%. Last months -8.2% was the biggest fall since the middle of the global financial crisis.

The housing data will be a key decision driver for the RBA, if we don’t see a strong recovery in the number this could be reflected in the Aussie performance. Each time we have seen a big decline in home loan data we have seen an immediate return (except in 2009), a continued slide will be telling for the housing market.

The Aussie remains under substantial pressure due to both domestic and overseas drivers. Anything that points to the RBA supporting the economy again will lead to a move higher in AUDUSD. We have seen weakness down to test the lows down at 0.6980, but the key aim is to maintain levels above 0.7000. If we can maintain the big psychological level then we can start to target a return to upside levels at 0.7210.

GBPAUD continues to trade higher at the start of the week after declining a percent in the previous week, cutting back the pair’s 2019 advance to 2%. The losses suffered by the pair over recent days are solely down to the Brexit story.

This is now yet another key week for the pair as we enter a week of yet more votes on Brexit in the House of Commons in London.With no further concessions on the Irish backstop likely from the EU, and talks being described as being close to breaking down, Theresa May is now unlikely to present the changes required to win and the most probable scenario is that Parliament then moves to vote on whether or not to exit the union without a deal, on Wednesday.