The past week has seen the Australian Dollar to US Dollar (AUD/USD) exchange rate fall steadily from a high of 0.7386 down to a low of 0.7097 and current conditions do not look favourable for the future performance of the ‘Aussie’.
At the beginning of last week, the Australian Dollar to US Dollar currency pair was trading in the region of 0.7386. This healthy performance continued into Tuesday as while the US Net Long-Term TIC Flows figure for June showed a $103.1bn increase, the Total Net figure declined by -$110.3bn. The ‘Aussie’ began its decline proper on Tuesday after the minutes of the latest Reserve Bank of Australia (RBA) policy meeting were released. The minutes showed a general indecisiveness on the part of policymakers: no further interest rate cuts had been planned, but similarly, the RBA didn’t think that conditions were suitable for a positive adjustment.
The lack of definite movement continued to be an issue on Wednesday, when the monthly Westpac Leading Index for July showed no change from the previous result of 0.0%. The Australian currency had a brief upsurge when the US annual CPI Indices for July failed to show any increase, but as a continuation of its downtrend pattern, the ‘Aussie’ fell substantially on Thursday when the Federal Open Market Committee minutes were released. As speculators scoured the minutes for signs of hawkish sentiment and dissent among the board, the Aussie was driven down to 0.7290 against the ‘Greenback’.
Yet another dip took place on Friday as the Chinese Caixin Manufacturing PMI for August came in with a further -0.7 point contraction, taking the index to 47.1 and its worst reading for six years. Despite this blow to Australia’s export prospects, the US Manufacturing PMI for August also fell (although not below the contraction line). This had the effect of raising the performance of the ‘Aussie’ at the end of the week, but the effect of the earlier Chinese results was just the tip of the iceberg. Yesterday, the Australian Dollar exchange rate plunged to its lowest point in over six years when global stock markets crashed due to mass-fear about China’s apparent economic slowdown bleeding out to infect neighbouring economies.
The Australian Conference Board Leading Index for June today saw a decline of -0.2%; this exactly cancels out the previous result of 0.2%. Lately, the US Consumer Confidence score for August has come in with a significant 10.6 point rise. Despite this, at the time of writing the ‘Aussie’ held the advantage in the pairing, indicating that the usual positive impact of the upbeat US data has been negated by yesterday’s stock market trauma and its impact on Federal Reserve interest rate hike expectations.
For the rest of the week, Australian Dollar/US Dollar exchange rate movement may occur as a result of tomorrow’s US Durable Goods Orders figure for July, the Australian Q2 Construction Work Done figure (also out tomorrow), the US Q2 GDP results out on Thursday and the Chinese annual Industrial Profits figure for July, which is due on Friday.
Forecasts have pessimistic for the Durable Goods result, with a -0.4% decline predicted; unfortunately, the same is true for the Australian construction figure with a -1.5% drop on the cards. US GDPs, on the other hand, are forecast to increase, but no prediction has been made for the Chinese outcome. Today’s reaction to the US Consumer Confidence result is worth bearing in mind though, as given how little the ‘Aussie’ was affected by something that would usually cripple it, a lack of influence from positive US data may be a recurrent theme for the week, which would help the Australian Dollar’s chances tremendously.