Australian Dollar a Sell Say Barclays Strategists
- Written by: Gary Howes
Barclays have made selling the Australian dollar one of their favoured strategies this week observing that the troubles facing the commodity sector have further to run.
Chase the Australian dollar lower say strategists at Barclays who believe the antipodean currency has further to fall. By all accounts the call appears to have been a good one - the AUD is lower mid-week with the familiar concerns over commodity prices weighing on the currency.
Recently, the Aussie dollar put in a decent performance following the release of better-than-expected employment data out of the Australian economy. Official statistics confirmed the unemployment rate remains at 6.1%.
We have noted that a number of economists have taken the release with a dose of caution as the employment series can be volatile.
Mid-week the AUD was sent lower following the release of wage price figures that showed wages are only rising at 0.6% on a quarterly basis. The average Australian worker can expect an annual growth in at 2.3%, but note this is well below the 2.9% figure recorded during the global financial crisis.
If anything, this confirms to us that the Aussie economy is in something of a trough at the moment and explains why the Aussie dollar continues to underperform.
The British pound to Australian dollar exchange rate (GBPAUD) has managed to rebound from its UK employment data dip ensuring that the uptrend that has been in place since October the 12th remains alive.
For the pound the ride higher must cross the 2.16 barrier before an attempt on the best exchange rate of 2015 occurs once more.
To us the exchange rate looks like it is caught in a comfortable sideways moving trend and until we get indications that the Bank of England is seriously considering raising interest rates we would not be overly confident that the GBP to AUD conversion will attempt the 2.20 level once more.
Indeed, we believe such levels are a story for 2016.
Latest Pound / Australian Dollar Exchange Rates
  | Live: 2.014▼ -0.11%12 Month Best:2.1645 |
*Your Bank's Retail Rate
| 1.9455 - 1.9536 |
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* Bank rates according to latest IMTI data.
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Trade for the week ahead: Short AUDUSD
Turning to the AUDUSD exchange rate, opportunity potentially awaits those wishing to bet on a decline in the Aussie dollar.
“While this week’s RBA board meeting minutes are unlikely to provide much new information, renewed weakness in global commodity prices should weigh on a still-overvalued AUD this week,” say strategists at Barclays.
Analysts at the bank believe recent price declines should highlight Australia’s large exposure to a slowing Chinese economy and the inability of its shrunken manufacturing export sector to compensate without further currency weakness.
Barclays’ technical strategist is also bearish AUDUSD against resistance near 0.7225 and looks for a move lower toward the 0.6935/0.6895 lows.
“A breach of the latter would signal further downside toward our greater targets near 0.6250,” says a note on the matter.
Australian Dollar Recovery?
It is not all downhill for the Australian dollar argue analysts at Intesa Sanpaolo, the European bank who have recently issued a special note on the currency’s prospects over coming months.
Analyst Asmara Jamaleh is of the view that the Reserve Bank of Australia, a persistent thorn in the side for the currency, are going to take a back seat over coming months:
“Beyond the short term, we confirm our expectations for a gradual recovery of the Australian dollar towards AUD/USD 0.75-0.80 on a 12m-24m horizon, given the fact that the RBA still expects inflation to rise back to target already by the end of next year, and growth to accelerate both in 2016 and in 2017.”
The new scenario outlined by the RBA does not 'guarantee' another rate cut.
“Reference to this option should be intended more as cautionary than preparatory, on condition, however, of the global growth picture not deteriorating further, with China at the fore, and/or commodity prices not dropping further,” says Jamaleh.
Wage Growth Concerns
Deflationary pressures across the globe are proving to be a persistent headache for central banks.
Inevitably, falling inflation invites central banks to cut back on rates to boost price growth; this however tends to hurt the domestic currency.
Could deflation become more of a concern to the RBA in coming months?
The subdued wage growth numbers released from Australia on the 18th suggests that domestic inflationary pressures will remain muted.
"Low wages growth will also limit the upside to household spending growth. This suggests that the RBA’s forecast of a return to above average consumption growth from 2016 will be difficult to achieve," say ANZ.
