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Is the worst over for the Australian dollar?

The Australian dollar trails only the South African Rand as 2013's worst performer, according to Greg Gibbs at RBS the Aussie dollar has declined 12.7 pct against a basket of currencies while the South African Rand has declined 15 pct.

Looking at today's exchange rates we see:

  • The pound vs Australian dollar is 0.4 pct down on a day-to-day basis at 1.6631.
  • The euro vs Australian dollar is 0.48 pct lower at 1.4372.
  • The Australian dollar vs US dollar is 0.34 pct higher at 0.9079.

NB: The above quotes are taken from the spot market - your bank will affix their own discretionary spread to the numbers when passing on their currency offer. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering more currency. Please learn more here.

Analyst Leander Dreyer has today told clients that the Aussie dollar could now have seen the worst pass it by:

"AUD is now at a level where the economic development and valuation is beginning to be consistent with each other. Several analysis houses point out that a value between 88 and 94 is appropriate. Technically, AUDUSD is at the most oversold level since the financial crisis. Therefore there is a fair likelihood of a rally in the short term."

Speculators cut back their bets against the Australian dollar

There are also suggestions that the bearish approach to AUD amongst speculators is waning. The latest data from the CFTC, which is used to track speculative currency positioning, shows net short positions paring back after reaching all time highs last week.

Lloyds Bank Research say they are not predicting such extreme AUD-negative positioning to come about again:

aussie dollar rates

"AUD has been under pressure over the past week, in part due to some softer domestic data and data from China continue to show signs of a slowdown in growth. AUD short positions remain at extended levels and while we could see a small increase in AUD short position in the next IMM release, we would not expect a significant extension of the recent highs.

"We think most of the bad new is now priced in to AUD."

The next big test for AUD

Ahead, the Australian dollar faces a big test in the form of an RBA interest rate decision.

The market is currently pricing a 70% chance of a 25bp cut at the August meeting with a 25bp cut almost fully priced in for the September meeting.

RBA minutes out tomorrow morning could provide some information as to how close the RBA were to providing additional stimulus at the July meeting though we doubt there will be much more information than the statement released earlier on in the month.

The next key release will be Q2 CPI out on 24 July ahead of the next RBA meeting on 6 August.

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