'Soggy' Australian dollar gives up gains

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This was published 9 years ago

'Soggy' Australian dollar gives up gains

By Yolanda Redrup
Updated

The Australian dollar is edging closer to the cycle's lows, once again slipping below US86¢ on Tuesday.

The dollar lost the gains it made from China lowering its official interest rate, trading around US86.07¢ for the majority of the day.

National Australia Bank global co-head of FX strategy Ray Attrill said the dollar was looking "soggy". "It's threatening to break below US86¢ and we're trading within half a cent of the cycle lows," he said.

"It's looking a little vulnerable and it's still as much a US dollar story as anything else."

Late on Friday the People's Bank of China lowered its official cash rate for the first time in more than two years, lifting the dollar to US86.87¢.

But as many analysts predicted, this rally was short-lived and the dollar swiftly dropped back to the tail end of US86¢. Not even positive consumer confidence figures were able to spur the dollar from its lows on Tuesday.

The ANZ-Roy Morgan Weekly Consumer Confidence index indicated consumer confidence had risen by 1.2 per cent to 114.3 for the week ending November 23 – a positive sign for retailers in the lead up to Christmas.

Mr Attrill said the coming US Federal Reserve and the European Central Bank announcements likely to affect the Australian dollar would not occur until next month, with this week tipped to be relatively uneventful.

"With the decision on the shooting in Ferguson in the US [on Monday], there is some risk of an outbreak of riots in hundreds of cities and if this occurs there could be some market impact," he said. Protests have already broken out on the streets of Ferguson after a grand jury decided police officer Darren ­Wilson would not face charges for killing a black teenager.

"The euro has also been in the focus and it got some support over night from the German Ifo survey."

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The index showed that German businesses were getting more confident, a welcome sign for Europe since growth data had indicated a slowing economy. The Australian dollar was trading around €0.6925 on Tuesday.

Locally, a speech from Reserve Bank of Australia deputy governor Philip Lowe to an Australian Business Economists dinner on Tuesday night could affect the dollar.

Mr Attrill said the US dollar was likely to continue to strengthen next year, but an unusually cold November could put downward pressure on it in December. "The first quarter this year was very cold and that hits growth hard and can have some implications, so the December numbers could come in weak," he said. "But in general the US will be the place to be next year."

Against the Japanese yen, the Australian dollar was trading down almost half a cent at ¥101.50 on Tuesday.

In the longer term the Australian dollar is expected to trade around ¥100 yen, as most of the currency's weakness has already been factored in.

In contrast, Mr Attrill said there was still a "considerable amount of weakness" to place downward pressure on the Aussie in 2015.

"We have continuing downward drifting commodity prices and terms of trade are still going lower," he said.

"With no foreseeable end to this in sight, the Aussie is still under considerable downward pressure from key commodity price drivers."

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