Australian dollar continues to cool off, but why? Blame the Chinese say UBS

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Category: Australian Dollar News

Written by Will Peters

International Money Transfers at our sister site

"In respect of AUD-USD, our sell recommendation was more or less on target. The cross rate has fallen by almost 1%" - Jyske Markets.

The Australian dollar (Currency:AUD) is finding the going to be a little tricky today, indeed, this week has seen the mighty Aussie cool off somewhat.

A look at the spot rates shows the Australian dollar to US dollar is 0.16 pct down on a day to day basis at 1.0472.
 
The pound sterling has advanced 0.16 pct to 1.4975 while the euro has lost a bit of ground and is at 1.1734.

The reasons are varied, no doubt poor demand for commodities in these summer trading doldrums could be contributing.

But over at UBS they are blaming the Chinese:


"We would not recommend positioning for AUD-USD upside … especially given the USD-CNY (pound - Chinese Yuan) fix continues to drift higher, returning overnight to levels last seen almost 9 months ago. If this trend continues it could soon start to exert downward pressure on the Australian dollar given the currency’s status as a CNY proxy."

So, depreciating Chinese Yuan = depreciating Australian dollar.

Over at Jyske Markets the recommendation to sell AUD-USD remains in place:

"In respect of AUD-USD, our sell recommendation was more or less on target. The cross rate has fallen by almost 1%. Overnight we saw weak consumer confidence indicators, which kept AUD lower. On a daily basis, there is strong support at 104.25-104.35. If this level is breached, the road is paved for the ‘big correction’, offering 5-10% potential within a fairly short time horizon. If investors have not sold already, they should await the breach in the support area."

Meanwhile Australian wage growth accelerated to +3.7% y/y (cons. 3.5%) in Q2, which supports the view of our Australian economics team that the RBA are likely to remain on hold for the foreseeable future.