FX comment – Triple top in the Australian dollar?

by: Roy Teo

Triple top in the Australian dollar?

After its sharp sell off in September, short covering in the Australian dollar (AUD) followed subsequently as technical indicators imply that the currency is oversold. However, the AUD/USD has failed to break above 0.89 convincingly on three attempts in the past month. We see this as a signal that further weakness in the currency lies ahead. Overnight, the AUD/USD slumped by more than one cent to 0.8780 after the FOMC’s meeting positive statement on the US economic outlook with further selling pressure seen during Asia trading hours. In the absence of key domestic or China economic data release today, we expect some support to come in around 0.8720 ahead of US Q3 GDP release tonight. Looking ahead, as we expect economic growth and inflation in Australia to slowdown in the second half of this year, a lower AUD/USD towards 0.86 is envisaged by the end of this year. Our 2015 forecast of 0.80 remains unchanged.