Is it Time to Start Dumping the Aussie?

Things ain’t lookin’ up for the currency from Down Under! Here are three good reasons why you may wanna start considering shorting the Aussie!

Weak Fundamentals Emerging

A couple of weeks ago, we got a major surprise from the Australian labor market, as it posted some downright ugly figures. In case you missed that report, here’s a short recap.
Instead of posting a small job loss number of just 6,700 people, we saw a massive decline of 36,100. Moreover, the unemployment rate jumped from 5.4% to 5.6%, its highest reading since late 2009.

With the jobs market being one of the major focuses of the Reserve Bank of Australia, rumor is that this could be final straw for the central bank, and that it may just start cutting interest rates soon. Expectations of a rate cut (or multiple ones, for that matter) could send the Aussie lower over the next few months.

Gold Dropping Like it’s Hot

Gold has been selling like hotcakes recently, falling as much as 19% to bottom out at around $1,325 / ounce last week. Apparently, the combination of the need to pay off debt and the lack of inflationary pressures have caused central banks and fund managers to unload their positions in the shiny metal.

The question is, how much further can this continue? The sell-off has slowed down a bit the past week or so, but this may just be a brief pause before the sellers come back in force.

Why do I bring this up? Remember, the Aussie is highly correlated to the price of gold. Should gold prices continue to plummet down the charts, it could drag the Australian dollar down with it.

Chinese Data Printing in the Red

China, one of Australia’s major trading partners, hasn’t been doing well. This was clearly seen in the country’s GDP report for Q1 2013. It showed that growth was just at 7.7%, a significant drop from the previous quarter’s 7.9%. According to the raw data, the fixed-asset investment component of the GDP fell by a big margin, hinting that companies might hold back on purchasing raw materials in the coming quarters.

The HSBC Manufacturing PMI, which is a closely-watched leading indicator, also points to a weaker economic outlook. It plunged to 50.5 in April, down from the 51.6 reading in March. It also failed to meet the forecast of 51.4 and is the lowest reading in two months. This clearly suggests that the pace of growth in China’s manufacturing sector continues to slow down.

AUD/USD

With AUD/USD approaching a major support level, we’ll have a better idea of how it will move in the future. Watch the 1.0160 level carefully, as it will determine whether AUD/USD is going to go higher or lower!