Is this the Australian dollar week!? ~Explaining the decline of the Australian dollar~
The Australian party leadership was decided amid internal party strife,with the leadership and prime minister changed in Australia!
As I wrote on the blog recently,there may be a drop in the AUD— I thought perhaps it would fall,but it fell faster than expected.Why did it fall more than expected!?I considered the factors behind the drop. Please refer to the article below that summarized the recent leadership change.
Explaining the continuing AUD decline: political issues and mortgage
Top left: AUD/JPY Top right: AUD/USD
Bottom left: EUR/AUD Bottom right: AUD/CHF
Charts by time frame
◎ Factors behind AUD selling
1）Australian political issue
Australia has recently held leadership elections twice in one week, three ministers resigned, and the prime minister changed, spreading political instability.There is a possibility that political issues will continue in the future, so this is a negative factor for the AUD. For more on political instability, please see the article below.
Explaining the continuing AUD decline: political issues and mortgage
2）Relations with China
Australia has a close relationship with China.The AUD has a high correlation with Chinese stock prices and economic indicators. China has recently become a target of President Trump.U.S.-China tariff and trade war. Both sides show no signs of stepping back, and both have imposed additional tariffs worth about $16 billion
3）Economic trends and banking issues
Last week, it was announcedthat major banks would raise mortgage rates. In the future, will other banks also raise rates? Will rate hikes cause an economic slowdown? This is noteworthy. In fact, the Reserve Bank of Australia (RBA) has stated the following: “High debt levels could complicate future policy decisions”“The major risk to financial stability is creditworthiness.” Going forward, housing-related and loan-related indicators may be given greater importance.
4）Capital withdrawal from Oceania currencies
Oceania currencies had attracted funds due to high interest rates. While major surrounding currencies pursued low-interest-rate policies, the AUD had a policy rate of 1.5% and the NZD 1.75%, making them high-yield currencies. Consequently, some people held AUD or NZD for yield. However,as the U.S. and Canada begin raising rates, the interest-rate advantage diminishes,and funds tend to move toward stronger economies like the U.S., Canada, and Europe where rate hikes are anticipated. It seems money is flowing out of AUD and NZD into USD, CAD, and EUR.
These four factors,appear to have led to the recent fall of the AUD.Additionally,these four factors are points to watch going forward.
1） In political and governance issues, there is a risk that the next year's general election could be brought forward. If an election occurs at this stage, based on current poll standings, a government change is likely. When such an election is conducted or potential, it is believed that political and governance instability could lead to AUD selling.
2） Regarding relations with China, there was a period when China intervened in Australian internal affairs, causing some disengagement. Recently, though, efforts to improve ties have been made, which is also associated with a decline in support ratings. Also,China is concerned about the U.S.-China trade and tariff issues worsening. If statements by Chinese and U.S. leaders or the imposition of additional tariffs worsen relations, a recession could be feared, becoming a factor for AUD selling.
3） As noted above,we are watching whether other banks will continue to raise rates. Also, the share of mortgage loans and household debt are likely to draw attention. Going forward,RBA statements and minutes,and comments will be watched to see how much concern there is about household debt.
4） Indeed, stopping capital outflows may be difficult. If rate hikes are implemented, perhaps, but since concerns about mortgage rate increases exist, further rate hikes seem unlikely for now. A point to watch is,if an economic downturn leads to rate cuts (concerns about rate cuts arise), AUD selling could accelerate rapidly, so caution is warranted.
This week looks like AUD might be the theme. Last weekend’s close was at a precarious level. If it breaks downward, it could quickly trigger stops and accelerate the decline.AUD carry trades are also popular due to favorable swaps, so repeats orders are common.Repeating orders tend to favor buying strategies, so be aware that stops tend to accumulate at key levels.
AUD/JPY daily chart
AUD/JPY time-frame charts
Next week's AUD-related economic indicators
07:30 Manufacturing PMI
10:30 Retail sales
10:45 Caixin Manufacturing PMI (China)
10:30 Current account
13:30Policy rate announcement and RBA statement
10:30Quarterly GDP (Q2)
10:45 Caixin Services PMI
10:30 Trade balance
10:30Mortgage lending
Policy rate is expected to be kept unchanged, but the statement will be of interest. Also, retail sales and quarterly GDP could move significantly. And most importantly, the mortgage indicators discussed above will be released. For Chinese indicators as well, Caixin indicators can move the AUD depending on the figures retail sales and quarterly GDP could move significantly. And most importantly, the mortgage indicators discussed above will be released. For Chinese indicators as well,, so I will be paying attention. There are so many indicators related to the AUD that next week looks to be an AUD-focused week… I have a feeling.
