By guest contributor Stuart Talman, Director of Australian Sales, XE.com
The Aussie dollar’s slide gained momentum last week yet remarkably, the Aussie dollar bears could not pierce the 70 US cent mark.
The local currency was under pressure for most of the week as a number of catalysts forced price action below key support at 0.7050/60 with the strongest catalyst being a very weak GDP print.
Last Wednesday’s release showed an Australian economy that slowed considerably over the second half of last year – growing by around 1% from July through December. With growth tracking well below the 4% pace seen in the first six months of 2018, there is a growing chorus for RBA rate cuts. Markets now fully pricing in 25 bps of cuts for 2019.
Retreating 0.62% for the week, the past fortnight’s price action and fundamental backdrop (stalling economic growth, falling house prices, weak consumer spending and expected rate cuts) suggest that price action will take another leg lower over the coming weeks to potentially establish a range below 70 US cents.
Adding global growth concerns to the domestic mix of headwinds, many analysts and commentators are shifting forecasts lower. Concerns over a global slowdown intensified this week as the ECB gave a dour assessment of EU growth prospects compelling a change to their forward guidance. The ECB’s forecasts for raising rates pushed back to 2019 end from the EU summer end.
In response, the US dollar produced its biggest one day climb in over two months and is set for further gains as deteriorating risk sentiment sees capital flows retreat from cycle-sensitive assets like the Aussie dollar.