The pain for the Australian dollar is not over yet
The Australian dollar lost about 4 figures against its US counterpart last week; further losses are expected due to the slowdown the Chinese economy is experiencing.
The Australian dollar plunged to a 6-month low at 0.8982 on Monday early morning. The selloff in AUD/USD, which started last week and eroded about 4 cents of the Aussie’s value, stems from investor’s anxiety about slower growth in China. During the weekend official Chinese data showed August factory output at its slowest pace in six years. The picture in other sectors of the economy was not brighter.
Traders are keenly awaiting the Fed policy meeting scheduled for Wednesday this week. Given the prevailing US dollar strength we would not be surprised to see the Aussie losing further ground.
Apart from the Australian dollar, the situation on the forex front is calm. The EUR/USD is stuck in a range between 1.2978 and 1.2860. Expectations here are for a next dip toward the 1.2750 support due to the monetary policy divergence between the Fed and the ECB.
As of 8:56 am London time, the USD/JPY is trading at 107.27, pretty close to the six-year peak touched on Friday. Today markets in Japan are closed for a holiday, so not much volatility is expected from there.
The US dollar index is currently at 84.27, consolidating after hitting a 14-month high at 84.51 last week. The greenback has been in strong demand recently, as markets have been calculating in its price the risk of an earlier Fed rate hike. Economic data pointing to a solid US recovery gives serious reasons for such expectations. Last Friday retail sales in America for August rose by 0.6 percent, double the growth made in July and topping estimates. Consumer sentiment surged to 84.6.
The yields of US Treasuries rose broadly last week, increasing the dollar’s appeal further. The weekly gain of 10-year bond yield was the biggest in more than a year.
The GBP/USD managed to stage a correction after touching a low of 1.6050 last week; currently it is trading at 1.6250. The referendum on Scotland’s independence from the UK on September 18 will determine the direction of the next big move for the pound.
