The Australian dollar remains weak amid mounting geopolitical tensions and the flat outlook for interest rates
The Australian dollar declined further in the past week as traders opted for the safety of the yen and the US dollar, with geopolitical conflicts raging globally.
The Australian dollar depreciated further over the past week, at the backdrop of extensive risk aversion and unrewarding domestic data. As geopolitical conflicts developed, the demand for the Aussie shrank, with traders opting for the safe haven status of the Japanese yenand the US Dollar. Another factor pressuring the Australian dollar was the sudden spike in local unemployment rate to a 12-year high.
If Middle East and Ukraine tensions continue to mount, there could be further short-term weakness for the AUD.There have been, however, some instances of geopolitical tensions escalating in the past months that have not lastingly impacted the currency. Similarly, in case the recent volatility subsides, the Aussie may be given space for relief.
The key figures for the Australian economy this week include consumer and business confidence. The recently released indicators of local economic health have demonstrated resilience, but have stayed subdued. Another round of soft readings will once again underscore the need for further pursuit of highly accommodative policy by the RBA.
Albeit the recent softening of local data, the Reserve Bank preference regarding ratesis a retention of a ‘period of stability’ in the short-term. As the Board recently pointed out, the renewed resorting to rate cuts would only take place if material deterioration is seen in incoming economic indicators. On the other hand, policy tightening is not likely to occur in the near term.
Through the past week, there was a sharp move to the negative in swaps-implied expectations regarding AUD/USD rates. Thus the Australian dollar’s carry appeal has not been boosted much, and its position remains in a bearish bias.
Australian traders are eager to see the data upcoming on Chinese Retail Sales and on Industrial Production data. Incoming Chinese fiugures have been largely positive, and thus have relieved concerns about economic growth slowdown. If the recent trend continues into next week, AUD could be in a good position for a relief rally.
The AUD/USD is inching toward the 0.92 crucial support level. If it breaches the line, a sustained decline can be expected to the psychological 0.9000 area.The outlook for the US dollar can provide insight into the impact the greenback side may have on the equation.
