There’s no mercy for AUD/USD: the US dollar’s strength across the board is only one reason. The Aussie has its own weaknesses.
It seems that even a weak NFP cannot bring AUD/USD above 0.90, which it lost with a big blast. So what is pushing the Aussie lower?
- PPI fell short: the quarterly release of producer prices certainly has an impact: after a rise of 0.3%, prices rose by only 0.1% in Q2, lower than 0.5% expected. This paves the way for a rate cut – the next item.
- A rate cut is almost a certainty: according to the markets, a rate cut has very high chances: above 90%. On one hand, the already low exchange rate might deter the RBA from action. But if they don’t cut, the rate will surely jump due to these expectations, and they don’t want that.
- Happiness from lower exchange rate: RBA member Catherine Tanna said that the drop in the Australian dollar is a boost to resource export returns. Are more drops welcome?
- Chinese H2 growth looks “grim”: An official Chinese paper said that the outlook for the giant’s economy in the second half looks grim, and the commerce minister said exports look pessimistic. Australia depends on China.
- Australian government forecasts worsened: Even though the government is nearing elections, it changed the forecasts to the pessimistic side: unemployment is expected to rise to 6.25% (from 5.75%), the budget deficit is expected to rise from 18 to 30 billion dollar and growth is expected to slow from 2.75% to 2.50%.
All in all, after AUD/USD consolidated above 0.90 for quite some time, a new wave of pessimism, readiness to sell and some dollar strength pushed the pair to lower ground. The pair reached a bottom of 0.880 so far, but this doesn’t seem like the end. 0.8767 is the next big target, followed by 0.8567.
The Aussie is also weakening against other currencies, with EUR/AUD making new highs, AUD/CAD at new lows and even the very close pair AUD/NZD continuing to dig lower.