The Australian dollar is back to its long standing resilience, holding higher ground above 0.87 and perhaps looking to tackle higher resistance. This is a different behavior than the one seen earlier, when the pair slipped under 0.86 despite good data.
This comes despite three events that should have hit the Australian dollar. Is this a bullish sign showing the pair has a long way to run? Or will the A$ eventually catch up with reality?
Here are the latest developments:
- RBA intervention is possible: The Reserve Bank of Australia’s Christopher Kent said his institution hasn’t ruled out intervention in currencies. This means that Australia will not sit on the sidelines in any situation, but could join the currency wars. While this comment did send AUD/USD falling fast, it also recovered quite quickly.
- Chinese miss: Industrial output in China, Australia’s No. 1 trade partner, grew by 7.7% y/y in October, less than 8% forecast. This indicator has already hit global markets hard a few months ago, and it’s closely watched.
- Lower forecasts: JP Morgan cut GDP growth forecasts for Australia, saying the country is set to grow by 2.8% in 2015 instead of 3.3% initially reported. Also for 2014, a growth rate of 3% after 3.1% originally forecast. The bank sees less consumer spending and worse terms of trade as some of the reasons for the downgrade.
So will it rise or will it fall? Credit Suisse says Sell AUD/USD Into 21-d AVG and Eaton Vance see a perfect storm playing against the Aussie.
Here is how the AUD/USD chart looks:
