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Negativity around the AUD is high after it broke a 2-year uptrend line to be trading at a low in around a year, according to Greg Gibbs, Analyst at Amplifying Global FX Capital.

Key Quotes

“It has been dragged down by a soft housing market, pressure on banks, undermining their equity performance and tightening credit conditions for housing.   Fears over the impact of the tariffs and credit tightening in China also added to the bearish view.”

“However, we should be wary of a rebound.   Tariffs news could improve if the US and China restart negotiations.   Australian commodity prices remain high relative to the exchange rate, especially for energy prices. GDP rose a strong 3.1%y/y in Q1, above potential, supported by government infrastructure spending, strong service export sectors (education and tourism), high population growth, high business confidence and investment.”

“Recent reports from mining companies point to a moderate recovery in capital spending, firming up evidence that the mining investment bust is over.   The Government has just passed tax cuts that may help their electoral prospects in a looming election, and help underpin consumer confidence.”

“The Australian equity market has out-performed regional peers with a rebound from recent lows in bank shares, suggesting that the market is moving beyond the risks generated by the Royal Commision into their past bad behaviour.”