As Big Pippin pointed out in today’s edition of Chart Art, AUD/USD is currently testing its yearly lows and might be ready to make new ones. Here are some reasons why the Aussie could keep selling off:
1. Stevens says AUD is “uncomfortably high”
Call it jawboning or being extra ambitious, but RBA Governor Stevens has been expressing his disdain for Aussie strength almost every chance he gets. Come to think of it, AUD/USD has already tumbled from the 1.0600 mark to the .8950 area throughout the entire year and he’s still not happy!
In one of his recent speeches, he mentioned that the Aussie is still “uncomfortably high” and that he would like to see it trade at .8500 against the U.S. dollar. One more push from a strong catalyst could be enough to take it there before 2013 comes to a close! Will the upcoming FOMC statement do the trick?
2. Budget problems in the Land Down Under?
Another factor that could lead to further Aussie weakness are speculations that the Australian government would be unable to reach its budget targets. The government’s Mid-year Economic and Fiscal Outlook report indicated a wider deficit of 47 billion AUD for 2014 versus the initial estimate of a 30.1 billion AUD shortfall.
Now debt problems haven’t been old news in Western nations but these issues are relatively unheard of in Australia, leading some market watchers to worry that the country might suffer the same fate as the euro zone. Although that scenario seems highly unlikely for now, credit rating agencies might be getting ready to dole out debt downgrades, which might lead to a fresh wave of Aussie selling. Throw in the possibility of spending cuts and tax hikes, and we’ve got a recipe for economic weakness as well!
3. Downgraded economic forecasts
The RBA and the Australian government both foresee bleaker growth prospects for the country in the coming year. Minutes of the central bank’s monetary policy meeting revealed that policymakers are expecting below-trend growth for 2014, as mining investment could continue to decline. Meanwhile, Australian Treasurer Joe Hockey highlighted the government’s softer economic outlook, spurred by expectations of a sharper decline in resources investment.
Despite that, the RBA has decided to hold off any rate cuts for now, as policymakers agreed that the recent stimulus efforts are just starting to kick in. Another reason why the Aussie is able to hold its ground for now is that China, its top trading buddy, is showing signs of a pick-up in demand. And let’s not forget the Santa Claus rally that might be waiting in the wings, ready to give higher-yielding currencies a boost in the next few weeks!
Do you think the Aussie could make new yearly lows this 2013? Let us know by voting through the poll below!