The Australian dollar is crumbling

PARK JI-HWAN / AFP / Getty Images
  • The Australian dollar has opened the new trading week at the lowest level since early January 2016.
  • The AUD/USD has now lost 11.6% from late January.
  • A raft of major Australian economic data will be released today, although it’s debatable just how much of an impact it will have on the Aussie.

The Australian dollar is under pressure, opening the new trading week at the lowest level since early January 2017 on Monday.

Here’s the scoreboard as at 7.55am in Sydney.

AUD/USD 0.7189 , -0.0001 , -0.01%
AUD/JPY 79.86 , -0.03 , -0.04%
AUD/CNH 4.9193 , -0.0039 , -0.08%
AUD/EUR 0.6193 , -0.0009 , -0.15%
AUD/GBP 0.5563 , 0.0019 , 0.34%
AUD/NZD 1.0853 , 0.0019 , 0.18%
AUD/CAD 0.9394 , 0.0011 , 0.12%

The combination of heightened trade tensions between the United States and Canada, further weakness in emerging market currencies and month-end capital flows weighed on the Australian dollar on Friday seeing the AUD/USD fall below previous support at 72 cents to close at the weakest level since January 2 last year.

“Markets ended the month of August with a sense of unease, as Canada and the US were unable to reach a deal for a NAFTA re-write,” said Rodrigo Catril, Senior FX Strategist at the National Australia Bank.

“Both parties agreed to keep talking and negotiations will resume on Wednesday with a deal still expected, but unlikely to be reached until later in the month.

“Unhappy with the outcome, Trump took to Twitter on Saturday slamming Canada’s decades of abuse and again threatened to go back to pre-NAFTA if no deal is agreed.”

Catril said the news helped the US dollar gain on the back of renewed safe haven flows, contributing to weakness in both emerging markets as well as the Australian dollar.

“The big dollar was the main beneficiary from these concerns on Friday with fragility in emerging market equities also playing a supporting role,” he said.

“The MSCI emerging market index fell 0.20% on the day, ending the month of August down over 2%, its fifth consecutive monthly decline.

“News that Canada had failed to reach a deal with the US dragged the AUD/USD down just over 50 pips to an intraday low of 0.7176 before a small recovery into the closed helped the pair end the month at 0.7192, its lowest monthly close since February 2016.”

The AUD/USD lost 3.2% in May, extending its slide from late January this year to 11.6%.

Investing.comAUD/USD Weekly Chart

Catril says the fragility of emerging markets, amid rising uncertainty over President Trump’s next move on trade policy, means the Aussie dollar looks vulnerable to further downside pressure in the period ahead.

“Technically the AUD remains in a downward trend and support from the May and December 2016 daily lows do not look sturdy enough to stem the decline if we are to be hit by hostile trade news this week,” he says.

“Looking at the chart, a move below the May 2016 low of 0.7145 opens an easy path for the AUD to have a look below 70 cents… [given] the likelihood that the other big three Australian Banks will sooner or later follow Westpac in lifting their variable mortgage rates.”

Given that backdrop, Catril says the new week looks likely to be a “tough one” for the Aussie.

While broader investor sentiment will likely continue to drive the Aussie’s movements, short-term direction today could be influenced by the release of major economic data releases both at home and abroad.

In Australia, markets will receive retail sales data for July along with the Ai Group’s manufacturing PMI report, CoreLogic’s hedonic house price index and ANZ job ads for August.

The ABS will also release a swathe of Q2 GDP inputs at 11.30am AEST ahead of Australia’s actual GDP release on Wednesday.

Regionally, a raft of manufacturing PMI reports for August will be released, including from China and Japan.

Later in the session, data highlights include manufacturing PMI reports from Europe and the UK.

US and Canadian financial markets will be closed for Labour Day holidays.

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