Is the Aussie in Trouble?

Once upon a time, the Aussie was the “it currency” of the market after its stellar economic performance launched it to stardom. Woot, woot! But with recent Australian reports printing bad figures one after another, could its ride up the charts come to a crashing halt? Let me give you the lowdown.

Australia’s housing market remains weak as traces of the RBA‘s hiking-frenzy (from 3.0% in October 2009 to 4.5% in May 2010) still weigh on the consumers’ pockets. Proof of this is the 3.9% drop in home loans for June to 46,240, which erased the 3% surge in May. June also marked the third consecutive monthly decline in residential building approvals which only added more insult to injury. Lastly, putting salt and lemon to that housing market wound is the 5.1% slump in new home sales for June. Ouch!

The next skeleton I found in the Aussie’s closet is Australia’s weak consumer spending. Retail sales only grew by 0.2% in June. That ain’t so bad, you say? Well, I think you ought to know that it was just half the 0.4% initial expectation, confirming that households are still struggling with the aggressive interest rate increases by the RBA!

Lastly, inflationary pressures in Australia remain to be on the low end as well. Don’t believe me? Just check out the PPI for the second quarter, which fell below the 1.2% consensus and printed a measly 0.3% reading. The CPI was also a huge disappointment as it sank down to 0.6%, a few steps down from the projected 1.0% figure. That felt like a punch in the gut for the Aussie since the RBA already announced that they’d hike rates only if the CPI met expectations or came in better than expected. So much for that…

I guess that’s why it didn’t come off as a surprise to everyone that the central bank decided to keep rates on hold for yet another month. According to the accompanying statement, although the RBA has kept an optimistic outlook for the economy, it is still worried that consumer spending may not pick up (Hello, Consumer Spending speaking. How may I help you?).

Not only is there underlying weakness on the home front, but Australia is heavily exposed to anything that happens to China… Ahh, China, the land of opportunity, dimsum, and bamboo sticks! Just in case y’all haven’t been paying attention, lemme remind you that China has been booming along the past couple of years and even posted double-digit growth last year!

The problem is that many expect that there will soon be a slowdown in China. Hmm, apparently, the Asian giant isn’t immune to the weakness in global recovery. With European nations cutting down on their spending and the US just barely keeping pace, Chinese exports are expected to slump in the coming months. Of course, this is bad news for our mates over in Australia as China buys boat loads of materials from Australia.

And before I forget, the Chinese government has gradually been implementing tightening policies to keep hyperinflation at bay. The effects of these measures may just start to emerge in the coming months.

Uh oh. With these dark clouds on the horizon, would it rain on the Aussie’s parade? Will AUDUSD’s uptrend be cut short?

Looking at the 4-hour chart of AUDUSD, it seems like the pair already broke below the rising trend line, suggesting that a reversal could be waiting in the wings.

audusd.png

Then again, I wouldn’t bet the farm on those Aussie shorts just yet. Traders’ mood towards the Aussie may have soured a bit but upcoming economic events could still turn those frowns upside down. Like I mentioned in yesterday’s entry, things ain’t looking too bright for the US dollar right now. I’d keep my eyes and ears open for the upcoming FOMC statement, knowing that the words “Quantitative easing? Bring it on!” could spell good news for the US dollar’s rivals. Maybe the Aussie could grab that opportunity to bounce back so stay on your toes!


  • TheCollegiateInvestor

    With the USD reporting near a tripled short interest from last week, I think the time has come for the AUD. This might be the catalyst that pops the housing bubble as well.

  • TheCollegiateInvestor

    With the USD reporting near a tripled short interest from last week, I think the time has come for the AUD. This might be the catalyst that pops the housing bubble as well.