Political drama dragged the Aussie lower last week. Will it have a chance to get some pips back this week?
Let’s take a look at the Aussie’s potential catalysts:
Quarterly CAPEX data (Aug 30, 1:30 am GMT)
The Aussie became the worst-performing currency during the Asian session when Australia’s CAPEX report widely missed analysts’ expectations.
In case you missed it, capital expenditure only grew by 0.4% in Q1 2018, which was waaay weaker than the 1.0% increase that analysts had expected and Q4 2017’s 0.2% uptick.
Market geeks are expecting to see a 0.6% improvement in Q2 2018. Construction work beat estimates last week so a better-than-expected reading could point investors to a relatively healthy GDP report due next month.
China’s PMI reports (Aug. 31, Asian session)
On Friday we’ll see China’s official manufacturing AND non-manufacturing PMIs for the month of August.
Analysts expect the manufacturing PMI to slip from 51.2 to 51.0, while the non-manufacturing bit is seen to drop from 54.0 to 53.8.
For newbies out there, know that the 50.0 figure marks the difference between an expanding and contracting industry.
Downside surprises could suggest that China’s economy is starting to really hurt from the U.S. tariffs implemented in late June. And since the Chinese yuan isn’t too widely traded around the world and Australia’s economy depends a lot on Chinese demand, traders tend to use the Aussie as proxy for the yuan.
Make sure you’re glued to the tube during the release!
Last Week’s Price Review
The Aussie is on track for its third week of net losses since the Aussie is currently the second biggest loser of the week (as of 6:00 am GMT).
The Aussie didn’t really track the Chinese yuan this week. And as you can see in the chart above, the Aussie switched back to tracking gold prices.
Gold wasn’t just the only driver for the Aussie’s price action, though, since Australian politics also had a major role to play.
There were already rumblings of political trouble last week, but nothing really major happened. However, things finally came to a head when Australian PM Malcolm Turnbull declared vacant the PM’s position during a Liberal Party meeting late on Monday.
Turnbull won the Party vote and retained his position as PM, but his margin of victory was so slim that market players began to wonder if Turnbull will survive further leadership challenges.
And that translated to selling pressure on the Aussie. In fact, the Aussie began to weaken against the Kiwi, the euro, the pound, and the Swissy even as gold prices continued to rise on Tuesday. And that selling pressure would only become more broad-based when gold traded sideways on Wednesday since the Aussie also began to weaken against the Loonie and Greenback.
As a side note, the RBA’s meeting minutes were released on Tuesday, but that didn’t really have much of an impact on the Aussie’s price action since the minutes didn’t really have any market-moving revelations to offer. Also, the RBA reiterated its forward guidance that “the next move in the cash rate would more likely be an increase than a decrease,” while also saying that there’s “no strong case for a near-term adjustment.”
And things only got worse for the Aussie from there since Finance Minister Mathias Cormann decided to call it quits, which was seen as a major blow for Turnbull’s leadership since Cormann is one of Turnbull’s major supporters. And Cormann wasn’t the only one since other ministers also tendered their resignation.
Aside from political troubles, the Aussie may have also been weighed down by growth-related worries since Australia apparently banned China’s Huawei and ZTE from supplying 5G cellular networking equipment within Australia, which may prompt China to retaliate. And remember, China is Australia’s biggest export market.
We have been informed by the Govt that Huawei & ZTE have been banned from providing 5G technology to Australia. This is a extremely disappointing result for consumers. Huawei is a world leader in 5G. Has safely & securely delivered wireless technology in Aust for close to 15 yrs
— Huawei Australia (@HuaweiOZ) August 22, 2018
Moreover, U.S. and Chinese tariffs came into effect, which is another reason to be worried about the Australia’s growth prospects.
Anyhow, the Aussie continued to slump lower after that before finally jumping higher from relief buying when Turnbull was ousted as PM and Scott Morrison became the new PM during a leadership vote on Friday. The damage was already done, though, so the Aussie is on track to closing out the week in the red.
— ABC Politics (@politicsabc) August 24, 2018