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Australian dollar poised to fall
Published on 31.01.2017 21:36

The Australian dollar is slightly higher in today’s trading on the back of local data, which showed a marked improvement in consumer confidence.

At 4.20pm (GMT) the Aussie dollar was trading at US75.81c up fromUS75.50c in yesterdays close.

Data out today from the National Australia Bank showed its business conditions index jumped from 6 to 11 in December and shows that confidence is on the rise

“The rebound in business conditions is certainly encouraging,” said NAB chief economist Alan Oster.

Still, “at this stage we are not getting too carried away with the result,” he added.

Some however like Morgan Stanley’s FX strategy team believe that bad news is just around the corner for the Aussie dollar and it is “now time to prepare for some weakness”

The site a renewed strength in the US dollar, as well as an end to rising commodity prices as two of the main factors which will help drive the Aussie dollar down,

 “Recently, AUD has been supported not only by commodities and the hope for higher fiscal spending globally, but also from a weaker USD following verbal intervention from President Trump,” the research team noted.

“We, however, are of the view that the USD cannot be held lower for long amidst improving data, expectations for fiscal spending and pricing in of Fed rate hikes.” they added.

They also noted that the Chinese economy has been underpinning commodity prices and any slowdown in the world’s 2nd largest economy may bring the price rise to an end.

 “Australia’s commodity terms of trade had been supported by the surge in China’s government-driven infrastructure investment in 2016, and from supply-side capacity cuts in the mining sector”

 “Should the overbought commodity market head towards a correction, AUD may lose its final pillar of support” they added.

The material published in on this page is produced by the FIBO group companies, and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC; furthermore it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

Andrew Masters

Analyst

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