The Australian Dollar Suffers Pressures From All Corners – Except Rate Expectations

(This is an excerpt from an article I originally published on Seeking Alpha on July 28, 2015. Click here to read the entire piece.)

When I last wrote about the Australian dollar (FXA), it was wavering at the 0.74 support level against the U.S. dollar. More importantly, market expectations for an August rate cut from the Reserve Bank of Australia (RBA) were soaring. Now, the 0.74 support level has given way and rate expectations have cooled off significantly.


The Australian dollar (FXA) continues to break through successive support levels and now sits at levels versus the U.S. dollar last seen May, 2009
The Australian dollar (FXA) continues to break through successive support levels and now sits at levels versus the U.S. dollar last seen May, 2009

Source: FreeStockCharts.com

The market's expectations for an August rate cut have plunged rapidly
The market’s expectations for an August rate cut have plunged rapidly

Source: ASX RBA Rate Indicator

Markets are also expecting just one more rate cut going forward, perhaps as far out as early 2016…


Just one more rate cut to go for this cycle of looser monetary policy?
Just one more rate cut to go for this cycle of looser monetary policy?

Source: ASX 30 Day Interbank Cash Rate Futures Implied Yield Curve (as at market close on July 28, 2015)

The plunge in rate expectations is a big surprise since it comes at the same time that China is roiling with its Shanghai Composite Index (SSEC) still breaking down…


The Shanghai Composite Index (SSEC) exploded to the upside exactly a year ago. Even Monday's 8% plunge did not set a new low for the current sell-off.
The Shanghai Composite Index (SSEC) exploded to the upside exactly a year ago. Even Monday’s 8% plunge did not set a new low for the current sell-off.

Commodities-related stocks like Caterpillar (CAT) have confirmed in earnings that the mining sector important to Australia continues to implode…


Caterpillar (CAT) is falling the way of commodities as it revisits levels from late 2011
Caterpillar (CAT) is falling the way of commodities as it revisits levels from late 2011

Source: FreeStockCharts.com

And Fortescue Metals Group (FSUGY), a domestic iron ore miner, confirmed on July 23, 2015 what many analysts have feared and projected: China’s steel consumption has peaked. {snip}


Recent earnings failed to stem the downward momentum for Fortescue Metals Group
Recent earnings failed to stem the downward momentum for Fortescue Metals Group

Source: ASX – prices in Australian dollars

{snip} The Flash China General Manufacturing Output Index printed at a 16-month low for July. {snip}

As if all that were not enough, on Friday, July 24th, the Standard & Poor’s tip-toed around a potential downgrade of Australia’s top-rated debt….:

{snip}


The British pound has beaten a steady path up the staircase against the Australian dollar
The British pound has beaten a steady path up the staircase against the Australian dollar

Source: FreeStockCharts.com

Be careful out there!

Full disclosure: long and short the Australian dollar against several currencies

(This is an excerpt from an article I originally published on Seeking Alpha on July 28, 2015. Click here to read the entire piece.)

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