The Australian dollar entered the cold winter in 2018.
During the steady economic growth of the US economy, the Fed’s steady interest rate hike, and the frequent global trade conflicts, the Australian dollar’s ​​cumulative largest decline against the US dollar reached 13.7%, the weakest of the major non-US currencies. currency. Under the steady and slow growth of Australia's economic fundamentals, the dollar's gains may have peaked, and the Australian dollar's short-selling power is nearing the limit.

Does the recent rebound in the Australian dollar mean that it can reverse this year's decline?

Australian economic fundamentals In 2018, Australia's annual GDP growth rate steadily rose from 2.4% in the first quarter to 3.4% in the third quarter. Among them, the growth of domestic demand accounted for more than half of GDP growth, reflecting the strong growth of household spending. The new Australian Prime Minister Morrison’s government is also accelerating the implementation of tax cuts for SMEs to further stimulate economic development. Due to strong population growth, Australia has not experienced a recession for nearly 27 years. Although the Reserve Bank of Australia has kept interest rates at a historical low of 1.5% for 27 months, the Reserve Bank of Australia still believes that low interest rates are good for Australia's economic growth. The unemployment rate in Australia has also declined this year, mainly due to the steady growth of the full-time employment population since June. However, problems such as high household debt ratio and slow salary growth will still be problems that plague Australia's economic growth. In addition, the Australian property market has cooled sharply, down 4.6% year-on-year, and the downward trend in Sydney and Melbourne is even more pronounced. This may further delay the rate hike by the Reserve Bank of Australia while dragging down Australia's economic growth. At present, the market generally believes that the probability of the RBA raising interest rates before the end of 2019 is not high, and the spread of the United States will continue to exert certain pressure on the Australian dollar.

Market outlook and technical analysis

Combining the economic fundamentals of Australia and the United States, as well as the current status and expectations of monetary policy, the Australian dollar will remain weak against the US dollar in the short term, that is, before the end of this year, due to the far-reaching monetary policy expectations between the two countries, and December.
The Fed’s interest rate hike is basically a nail. However, in the long-term trend, the Australian dollar is now oversold, and the short-selling power is approaching the limit. According to the CFTC's speculative position data, the Australian dollar's short position is now close to a 10-year high. Therefore, the long-term trend of the Australian dollar will be stronger with the development of the Australian economy and the improvement of the Chinese economy and the expected changes in the monetary policy of the Reserve Bank of Australia. The daily chart of the Australian dollar against the US dollar shows that the Australian dollar has entered the downtrend channel since January 2018, and the Australian dollar broke through the channel against the US dollar on November 1, but it cannot confirm the end of the Australian dollar's decline.
The Australian dollar is now trading above the 100-day moving average and is testing the 23.6% retracement of this year's decline. However, the daily RSI indicator is close to the overbought area. Whether this round can break through the key resistance level of 0.7300 still needs to wait for the market reaction. If an effective breakthrough is formed, the shock will rise back to 0.7578 where the 50% retracement is located.

Article from AETOS