The AUD struggled against all of the major currencies in the last week. The factors driving this downward trend include rising oil and commodity prices which seem to have put the investors into a risk-averse mode. There seems to be a rush for safe-haven currencies which is hitting the value of all risk-sensitive currencies like the AUD. 

AUD - USD

The AUD-USD pairing had a bearish week that saw the AUD lose almost 2.36% of its value against the USD. This bearish pattern started last week with the release of very strong US non-farm payroll data and it has continued all through this week due to developments that have heavily favored the USD. 

The Australian dollar continued its downward spiral. Supply-side shocks and rising demand have pumped up oil prices and other commodities higher; this trend is going to lift inflation expectations which will likely force the Fed to be more hawkish. This pushed US yield rates higher putting the USD in a very strong position as a safe haven compared to more risk-sensitive currencies like the AUD.

It must be kept in mind that the Australian economy has got its fundamental indicators flashing in green. The economy is at its strongest it has ever been, in the absence of the current macro factors the AUD - USD may even achieve parity but the AUD is a risk-sensitive currency that is also very deeply linked with China. Economic fundamentals take the backseat when a big economy like China shows signs of economic arrest due to another possible virus breakout.  

The current macro environment is dictated by uncertainty, which always favors safe-haven currencies. Investors are making a run for the USD, as the commodity supercycle strengthens. The current investor sentiment based on technical analysis is to strongly sell AUD against the USD for the next week. 

AUD - EUR

The AUD-EUR pairing has also been on a bearish trend in the last week. The AUD lost almost 0.63% against the EUR and is currently trading at levels where it was at the end of May. 

The AUD started the week on a strong note, aided by a higher than expected 50 bps rate hike by the RBA but macro-environment factors pushed the AUD down against the EUR. In addition to the macro factors, the EUR is loaded with the expectations of the first-ever rate hike since 2011 by the ECB to end negative rates. Deutsche Bank is expecting at least two 50 bps rate hikes before the end of this year, whereas Morgan Stanley is expecting a 50 bps hike in July followed by a 25 bps hike later this year.  

Although EUR is jacked up on rate hike expectations, the AUD gained a lot of ground late in the week, as ECB downgraded its growth expectations and hinted at higher than expected inflation rates. 

The AUD should be bullish right now but a run for safe-haven currencies and news of a virus outbreak in China has pushed the AUD down against the EUR. The current investor sentiment based on technical analysis is neutral for this pairing AUD-EUR  for the next week.

AUD - GBP

Like the other pairings, the AUD-GBP pairing has also been on a bearish trend since last week. The AUD has lost 0.33% of its value against the GBP. The main reason for this bearish run that the AUD is experiencing against all major currencies is because investor sentiment has shifted in favor of safe-haven currencies like the USD, EUR, and GBP. 

This shift in favor of safe havens is being driven by the rising oil and commodity prices. This has not only shot up inflation expectations globally but it has also brought back the fears of an impending recession. 

The inner dynamics of the safe-haven currencies have also gone in favor of the GBP in the past week. As the ECB downgraded its growth figures, this saw funds flow out of the EUR towards the GBP, strengthening it in the short run. 

The fact that Boris Johnson survived the vote of no confidence also restored confidence and brought stability to the GBP, in spite of record inflation and the BoE being in a tight spot to manage the rates.  

This is why we are seeing the fundamentally weak GBP rally against the fundamentally stronger AUD. Although the last week has been good for the GBP, technical indicators are still suggesting that investors should buy the AUD against the GBP for the next week. 

AUD - NZD

The AUD started the week on a very bullish note against the NZD with the AUD wiping out all the gains it made against the NZD since the end of May. The 50bps hike by RBA pumped the AUD for the good part of the week before the fears of the Chinese economy going through another arrest on account of a virus breakout in Shanghai, pulled the AUD back. 

The NZD was further strengthened by the release of less-than-expected budget deficit figures.  The NZD is also riding the wave of an expected rate hike but the pairing is being largely affected by the situation in China. Based on technical analysis, the current investor sentiment is to buy the AUD-NZD for the next week.

If you’d like to chat with Ian Cragg directly jump onto his Specialist Page and send him an email.

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