After falling to new 3.5 year lows against the US dollar, the Aussie did not have a chance to take a breather and continued the sell off.
Against the dollar, the A$ already reached the 0.86 handle, and reached a low of 0.8680. This move is not accompanied by a USD rally. So, the Australian dollar is also dropping to new lows against a variety of currencies. Against the New Zealand dollar, we are already below the 1.05 handle. AUD/NZD parity could come sooner than later. There are two main reasons for the recent sell-off:
- A new target of 0.80 for AUD/USD?: After RBA governor Glenn Stevens mentioned the 0.85 level for Aussie/USD, one of his colleagues, external RBA member Heather Riduot said that: “A dollar around US$0.80 would be a fair deal for everybody”. While this level is far away, her words certainly got that level closer. 0.8066 is the 2010 low, that worked as multiple support.
- Fears about China: Jitters in Chinese money markets are not fading away. There are worries about the shadow banking system, local debt, and the willingness of the authorities to really tackle the situation. The ongoing worries join the weaker than expected Chinese manufacturing PMI. As Australia still depends on China, these fears weigh on the Aussie.
At current levels, serious support is found only at 0.8578, followed by the round number of 0.85. 0.8578 was an important line in 2010. 0.8767 could cap any recovery attempt.
For more on the Aussie, see the AUDUSD forecast.
This South Pacific pair has been going one way: down. As New Zealand depends on food exports rather than metals, a Chinese slowdown has less impact. More importantly, the central bank in New Zealand, RBNZ, is more likely to hike in before the RBA, or even hike as the RBA cuts. This macro divergence results in a one way ticket down.
At uncharted territory, the most round number of Aussie/kiwi parity is the ultimate support line. Resistance can be found at 1.0530 and 1.0585.