Aussie Dollar Feeling Chinese Woes
Today’s Spotlight Market
The Australian Dollar has struggled to regain its footing due to outside pressure from China and interest rate questions. Australia?s trade relationship with China has been a fruitful one for many years, but the Chinese downturn has taken its toll on the economy. The core problem for Australia is much deeper, as there is is a global glut of raw materials, and Australia?s economy is based on exporting materials. Weakness is the Canadian Dollar, New Zealand Dollar and South African Rand has added to the pressure on the Aussie, as those currencies are traded in the same basket as the Aussie Dollar due to their economic similarities.
Fundamentals
Chinese demand for raw materials may not necessarily rebound as quickly as overall economic activity, which could be a problem for Australia. The recent devaluation of the Yuan has reduced the purchasing power of Chinese businesses and investors. The Caixin manufacturing Purchasing Managers Index fell to 47.0, lower than the forecast 47.5 reading. This is the worst showing for the index since the 2007-2008 financial crisis. Depending on the trade balance, this poor showing for the PMI could open the door for further devaluations of the Yuan by China and further weakening of demand for Australian natural resources. While the Federal Reserve maintained current interest rate levels, it is widely believed that it is a matter of time before the central bank begins to raise rates. The Reserve Bank of Australia, on the other hand, is forecast to lower the cash rate to 1.5% next year. The unemployment rate is expected to creep up to 6.5% by November, which could further pressure the Australian Dollar.
Technical Notes? -? View Today’s Chart
Turning to the chart, we see the December Australian Dollar heading toward the 0.6923 low from earlier this month. This could be seen as an important level in the near-term, as a lower close would continue the pattern of lower highs and lower lows. A rebound off this level could be viewed as positive near-term. On the upside, closing above the 0.7250 mark may be interpreted a reversal.
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