Turning around the Aussie

October 13, 2015

The Aussie’s relentless run higher seen over the past near two weeks has been brought to an abrupt halt by the latest batch of weak data from China. The trade data showed imports slumping by 20% in YoY terms, after a 14% decline in the previous month. Although impacted by the recent fall in commodity prices, the data reflect the view that domestic demand is also weakening. As for the Aussie, it’s not a surprise to see the recent rally running out of steam, with a high seen at 0.7382, from having been below the 0.70 level towards the end of last month. In the bigger picture, the reasons to be bearish on the Aussie are diminishing, especially in light of the deprecation seen in recent years.

Elsewhere, the single currency continues to perform well relative to others and also the dollar, stopping just shy of the 1.14 level yesterday. The average true range (1 month, simple) for EURUSD is at the low for the March to October period, just above 1 big figure. This is a reflection of the removal of near-term Fed hike expectations, which has reduced the dollar’s sensitivity to data. For today, the focus is on inflation data in the UK at 08:30 GMT, with headline inflation seen going nowhere at 0.0% YoY and PPI data also seen at the same time. Sterling has also managed to hold its ground recently, cable having reversed the push towards the 1.50 level. It’s worth keeping an eye on the core inflation rate on the CPI data, which is expected to nudge higher to 1.0% to 1.1%. This is what the Bank are leaning on with regards to their forward optimism on prices. The only other focus will be the ZEW data at 09:00 GMT in Germany as a reflection of confidence in the overall economy.

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