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FX CURRENCY WATCH


The AUD dollar drifts towards the Perfect Economic Storm


by Brad Gilbert


Te Aussie dollar has had a pretty good ride up until now, but it’s about to come crashing down. Tere are tell tail signs with the last couple of interest rate cuts by the RBA having little or no impact on the local economy. Te devil is in the detail and if the recent economic data is anything to go by the AUD/USD is in for a very hard landing.


Te RBA is back pedalling at a rate of knots and it’s taking its toll on the AUD seeing it fall from 1.0538 to 0.9378 in just under 2 months.


First let’s look at the RBA. Tey are in a rapid interest rate cutting phase (chart 2). Whilst the rest of the world was sitting on interest rates under 1% the RBA held firm at 4.75%. Tey’ve been too slow to react to the slowdown in global growth and are now cutting in order to maintain some level of economic expansion. Too little, too late! Interest rates are expected to continue lower under 2% within the next 6-12 months. Tis should see a huge exodus out of long AUD/USD positions alone. But there’s more to this story.


Chart.2 RBA overnight cash rate Chart.1 Daily chart AUD/USD


It broke through the critical 0.9850 (chart 1) level on the Daily charts a few weeks ago and is now starting to experience a bit of free fall action. But if you thought that was the end of it think again as there’s a bunch of data which suggests a move to 0.8500 in the short term is not out of the question.


44 FX TRADER MAGAZINE July - September 2013


Retail sales (chart 3) has been a horrible sector for the economy and it doesn’t look like it’s going to get any better in the short term. A high dollar and high wage costs makes Aussie retailers uncompetitive. Even at half price they can’t compete with international markets. As you can see from the data below the rate has been hovering in the negative territory for the past 12 months. If you take out the seasonal activity around Xmas it paints a very dire picture.


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