AUD/USD dipped below the critical support line of 0.9388. This was the trough of October 2011 and temporarily traded at levels last seen in September 2010.
However, it dropped to only 0.9381 before rebounding above 0.94. Here are 7 reasons for the fall.
Update: the pair extends its falls and already reached a bottom of 0.9359 at the time of writing. The crash continues, with AUD/USD already under 0.9340.
The Aussie is generally suffering from the “end of the mining boom” in Australia, a Chinese slowdown and not enough strength in the non-mining economy. Here are the specific reasons for the current fall:
- Australian home loans disappointed: the number of home loans rose by 0.8% in April, weaker than 2.1% that was expected. In addition, this came on top of a downwards revision of the rise in March: 4.8% instead of 5.2% originally reported.
- Weak business confidence: the National Australia Bank printed a negative number in business confidence: -1 point in May. This is the second month in a row of weakness.
- Goldman lowers AUD/USD, growth forecast: The big investment bank cuts the forecasts for the Aussie from 0.97 to 0.92 in the next 3 months, from 0.95 to 0.90 in the next 6 months and from 0.90 to 0.85 on a 12 month basis. It also lowered the 2013 growth forecast from 2.4% to 2% and the 2014 forecast from 2.7% to 1.9%. It also predicts a 20% chance of recession.
- Insolvencies reach record: A record number of Australian companies became insolvent: 941 in April. The numbers are similar to 2012 but are higher than in 2008 to 2011, in the height of the financial crisis.
- Political uncertainty: Towards the elections in September, Australian PM Julia Gillard is set to lose the elections and there speculation that she could be replaced by her predecessor, Kevin Rudd. Friction between the two politicians in the Labour Party have been seen in the past.
- Lower Chinese forecast by PIMCO: Ramin Toloui, an executive vice president and global co-head of emerging markets in the world’s largest bond fund said that China’s growth will slow to an average of 6-7% in the next 5 years, slower than an average of 9% in the past 5 years.
- Lower Chinese forecast by Daiwa: 2013 is expected to stand at 7.8%, from 8.1%, and 2014 is expected to be weaker: 7.5% instead of 7.7%. China’s is Australia’s main trade partner.
AUD/USD is now holding on to 0.94, but it doesn’t really recover fast. While many currencies rallied against the dollar, the Aussie failed to recover.
Is it a false break that will turn into a hammer pattern and a big recovery? The Aussie already had similar moves in the past. This option can certainly be considered as positioning has become extreme. It seems that everybody is short, and there’s no one left to sell.
However, given the real issues and change in atmosphere, it seems that the road down is still long, even if we will see bumps on the way.
For more levels, events and analysis, see the AUD/USD forecast.