The Aussie dollar fell completely out of bed yesterday. It dropped to just shy of the 2014 low but was still printing a low of 0.8643 before the buyers stepped back in.
The catalyst seems to have been the combination of the marginal increase in unemployment from the ABS’ recalibration and the much worse than expected trade data which showed a massive blowout of $904 million in fuels and lubricants.
But what the market initially ignored was the stunning retail sales figures which, even abstracting the iPhone effect accounting for half of the stunning 1.2% rise in the month, smashed the punditry’s expectations. The data also painted a picture consistent with the rebound in consumer confidence and a better run up to Christmas.
But having tested the low, buyers swiftly re-entered the market and when the RBA didn’t surprise, the Aussie rallied and sits this morning at 0.8735.
The key, according to Westpac’s New York-based FX strategist Richard Franulovich, is that:
“the currency has absorbed its fair share of net selling, so much so that the 60 day sum of net flow is about as weak as it typically gets. Appetite for AUD has been weak – for good reasons as we argue overleaf – but it is near a lower limit at close to 2 z-zcores below trend.”
That means Franulovich doesn’t believe there is much more room in traders’ portfolios for more selling to come at the moment.
It’s not a story of strength by any stretch of the imagination but it seems the Aussie might go up simply because it can’t go down.