- The Australian dollar has fallen to the lowest level against the greenback in a month in early trade on Monday.
- Heightened geopolitical risks and concern about the Chinese economy has contributed to the Aussie’s recent weakness, adding to concerns about the US and Australian economies from late last week.
- Australian home loan data for October will be released today. The performance of Chinese financial markets is likely to be influential on broader sentiment during the Asian session.
The Australian dollar continues to slide, falling to the lowest level in a month in early trade on Monday.
Here’s the scoreboard as at 8.05am in Sydney.
AUD/USD 0.7179 , -0.002 , -0.28%
AUD/JPY 80.82 , -0.23 , -0.28%
AUD/CNH 4.9506 , 0.0014 , 0.03%
AUD/EUR 0.6298 , -0.0021 , -0.33%
AUD/GBP 0.5649 , 0.0001 , 0.02%
AUD/NZD 1.0454 , 0 , 0.00%
AUD/CAD 0.9567 , -0.0031 , -0.32%
A combination of heightened risk aversion and soft economic data from Australia, the United States and China has taken its toll on the Aussie dollar so far in December, says Joseph Capurso, Senior Currency Strategist at the Commonwealth Bank.
“The AUD/USD decreased by 2 US cents last week because concerns about US China trade frictions and weaker than expected Australian economic data,” he says.
“The AUD/USD lost another 0.25%t in early Asia trading following the weekend release of softer Chinese economic data.”
According to data released by China’s General Administration of Customs on Saturday, imports and exports grew by 3% and 5.4% respectively in the year to November in US dollar terms, undershooting market forecasts for growth of 14.5% and 10% over this period.
“Weak imports means the trade surplus blew out to $US44.7 billion from $US34 billion in October,” said Ray Attrill, Head of FX Strategy at the National Australia Bank.
“The bilateral balance with the US printed a new record surplus of $US35.6 billion… [underlining] that numbers prior to November have been heavily distorted by front loading ahead of US tariffs and China’s retaliation to them.”
Chinese CPI and PPI also undershot market expectations, growing by 2.2% and 2.7% respectively in November compared to a year earlier. The latter is often regarded as a lead indicator on broader inflationary pressures in major developed countries in the months ahead.
Even before the weak Chinese data arrived, the Aussie dollar was already under pressure from a sharp slowdown in the Australian economy in the September quarter along with increased geopolitical tensions between the United States and China following the arrest of a senior Chinese business official in Canada on behalf of the US government.
A noticeable slowdown in hiring in the United States in November, adding to the already heightened concerns about a potential sharp slowdown in the US economy in the coming quarters, also took its toll on risk assets on Friday, contributing to steep falls in US stocks and further weakness in the Aussie dollar.
“Weaker-than-expected US payrolls growth, still-benign earnings growth and an unchanged 3.7% unemployment rate initially drove US bonds yields and the US dollar on Friday,” Attrill said.
“However, progressive weakening in US stocks throughout the session — NASDAQ ending down more than 3% — ensured that bond yields stayed down while the USD drew support from its safe have attributes, pushing the Aussie back down in the process.”
Given the combination of geopolitics and weaker Australian and US data late last week, the AUD/USD has continued to slide in early trade on Monday, falling from Friday’s close of .7199 to .7179.
Turning to the day ahead, the performance of Chinese financial markets once they begin trade from midday, along with any subsequent headlines relating to China-US trade trade tensions, will likely determine how broader currency markets fare in the Asian session.
On the data docket, Australian home loan data for October will be released at 11.30am AEDT.
“We predict Australian housing finance contracted again,” says Capurso at the Commonwealth Bank. “A weaker number would further undermine AUD because it will feed into the narrative that the RBA is a long way from starting a tightening cycle.”
More broadly, Capurso expects “concerns about US-China trade frictions will linger this week and be a drag on AUD”.
Before the housing data arrives, RBA Assistant Governor Christopher Kent will speak on “US Monetary Policy and Australian Financial Conditions” from 8.35am in Sydney.
Outside of Australia, Japan will also release the second reading of Q3 GDP — a larger quarterly contraction of 0.5% is expected following a preliminary estimate of -0.3%.
Later in the session, other highlights include German and UK trade, UK industrial output, Eurozone investor sentiment, Canadian housing starts and building permits along with JOLTS job openings in the United State.
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