Thinking of taking advantage of the AUD/USD selloff but worried that you’re too late to the party? Check out these four reasons why AUD/USD could keep dropping.
1. Q4 2012 GDP could come in weak.
The Land Down Under is expected to print a bleak GDP reading for the last quarter of 2012 as consumer spending, a major component of overall economic performance, slumped from October to December last year.
The recent retail sales release showed that spending slipped by 0.2% in December, led by declines in the food and pharmaceuticals sector. On top of that, the November retail sales figure was revised from -0.1% down to -0.2%.
Several market watchers were quick to remark that three consecutive monthly declines in consumer spending could be indicative of an ongoing decline in consumer confidence, which could keep weighing on Australia’s economic performance.
2. Latest jobs report wasn’t so promising.
After seeing a 5.5K drop in hiring for December, analysts were initially relieved to see that the employment change figure posted a 10.4K increase for January and that the jobless rate held steady at 5.4%. After all, these figures were better than the estimated 5.8K rise in employment and the consensus of a 5.5% unemployment rate for the month.
Digging a little deeper into the numbers, however, would reveal that the positive jobs figure was mostly a result of an increase in part-time hiring. In fact, the Australian economy added 20.2K part-time workers in January but actually shed 9.8K full-time jobs.
Aside from that, one of the reasons why the jobless rate managed to stay unchanged was that some people have given up looking for work and just left the labor force. This is reflected by the decline in participation rate, which dipped from 65.1% to 65% in January.
3. An RBA rate cut is still on the table.
As if the weak economic reports aren’t enough to spook the Aussie bulls, the RBA also hinted that a rate cut is still very much on the table.
In its last rate statement, the Reserve Bank of Australia (RBA) cited improving global economic conditions as its reason for keeping its rates at 3.00%. Unfortunately, the RBA isn’t feeling too optimistic on its domestic economy.
RBA head Stevens said that their economy will likely expand “a little below the trend” in the coming year and that its weak labor market and subdued inflation leaves a lot of room for more action. Now many analysts now believe that the central bank’s optimism on the global economy won’t be enough to sway the RBA from cutting its rates if more reports support a weakening domestic economy.
4. AUD/USD is showing reversal signals.
This is probably why we’re seeing possible reversal signals on AUD/USD. If we look at the daily chart we’ll see that the pair had just broken a falling trend line that had been holding since October last year. Not only that, but the pair had also just broken a possible double top neckline!
With weak economic prospects and a dovish central bank, it’s hard to imagine a possible game changer that would reverse the Aussie’s weakness. This is just one handsome old man’s opinion though. What do you think? Are all these factors fully priced in or will the Aussie keep going down under?