- The Australian dollar fell for a third consecutive session on Thursday, and is not far away from the multi-year lows struck earlier this month.
- Weak Australian economic data, another plunge in emerging market currencies and renewed trade concerns surrounding the United States and China all contributed to the Aussie’s weakness.
- Risk sentiment, rather than economic data, will likely dictate the direction of the Aussie on Friday.
The Australian dollar continues to fall, losing further ground on Thursday on the back of soft domestic data, weakness in emerging markets and renewed trade fears.
Here’s the scoreboard as at 7am in Sydney.
AUD/USD 0.7262 , -0.0046 , -0.63%
AUD/JPY 80.62 , -0.97 , -1.19%
AUD/CNH 4.9862 , 0.0028 , 0.06%
AUD/EUR 0.6223 , -0.0018 , -0.29%
AUD/GBP 0.5581 , -0.0028 , -0.50%
AUD/NZD 1.0902 , 0.0027 , 0.25%
AUD/CAD 0.9422 , -0.0014 , -0.15%
Having fallen in the prior two sessions, the Aussie found little respite on Thursday as a combination of disappointing local data and widespread losses in emerging markets across Asia saw the AUD/USD slide back below the .7300 level.
Private capital expenditure in the June quarter fell well short or expectations. Views on investment in the current financial year were also disappointing, casting doubt on whether non-mining expenditure will increase as the RBA and other think.
Building approvals data for July also undershot expectations, falling 5.2%, cementing the view that Australia’s residential construction boom is now past its peak.
Along with soft domestic data, the Aussie was not helped by renewed and large-scale weakness in emerging market currencies.
“The Argentine peso off was another 12% overnight, this after the country had earlier asked for faster disbursements of its $50 billion IMF aid package and a failed attempt to shore up the currency with a 15% jump in interest rates to 60%,” said Ray Attrill, Head of FX Strategy at the National Australia Bank.
“Renewal of pressure on the Turkish Lire is also evident, off almost 3% overnight [and] 12% for the week.
“ZAR, CLP and MXN and BRL are also all lower by between 0.9% and 2.4%.”
Adding to the Aussie woes were renewed concerns over trade negotiations between the United States and China with Bloomberg reporting that Donald Trump wants to impose tariffs on $200 billion worth of Chinese imports as soon as the public comment period concludes next week.
The news weighed on risk assets around the world, and lead to even further weakness in the offshore traded yuan.
Given the Aussie’s close correlation to the yuan of late, it was unsurprising to see it fall in sympathy to the news.
The Aussie also fell against most of the major crosses, especially the Japanese yen which tends to benefit from periods of heightened risk aversion.
The two exceptions to the rule were the Chinese yuan and New Zealand dollar. The former coming under pressure from trade concerns, the latter on news that Kiwi business confidence fell to recessionary levels in August.
Turning to the day ahead, Attrill at the NAB believes there’ll likely be some follow-through losses in emerging market currencies in Asia, something that could potentially lead to further losses in the Aussie.
In particular, the moves in the both the onshore and offshore traded yuan will be worth watching closely.
On the data front, highlights in Asia include private sector credit in Australia, industrial production, Tokyo inflation and unemployment data from Japan, as well as official manufacturing and non-manufacturing PMI reports from China.
Of all the reports the Chinese PMI appears most likely to cause a reaction in markets. However, given the current backdrop, it’s debatable as to how large it will be.
Later in the session, markets will receive inflation and unemployment data from the Eurozone, Italian GDP, UK house prices, German retail sales as well as the University of Michigan consumer sentiment survey from the United States.
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