Australia continues to disappoint across the board with economic data falling below less than optimistic expectations. The decline in the Aussie-dollar came after a big day Monday when the Reserve Bank of Australia decided to leave cash rates at 2.5 percent. The decline continued to add on last session’s drop after PSI and GDP figures fall sharply from months previous.
The Australian services sector hit a 13-month low in May with the Australian Performance of Services Index (PSI) fell by 3.5 points to 40.6 – like many other economic indicators, below 50 is regarded as contraction. Regardless of previous rate cuts, sentiment is weak. Business have to continue to lower prices to try an increase demand. Innes Willox, Australian Industry Group CEO, said it was “all-too-apparent weakness across the services sector lends disturbing support to the view that the broader economy is further slowing in the face of poor sentiment in both household and business sectors.”
The GDP figure falls slightly below analyst expectations; .6 percent MoM v. .8 percent; 2.5 percent v. 2.7 percent YoY. Andrew Hanlan, senior economist with Westpac Banking, said “The absence of strong gains in mining capital expenditure has exposed a lack of strength across the broader economy.” It is clear that Australia’s mining boom has slumped over and hit hard with sinking commodity prices.
National household spending and savings ratios increased, .6 and 10.6 percent respectively. Government spending dropped 15.3 percent and slashed .9 from GDP while Machinery and equipment fell 6.9 percent and subtracting .4 from GDP.
AUDUSD has been down, -.35% currently, and has nearly retraced the entire move up from .959. In previous pieces, I am still bearish on Aussie due to the ever-decreasing economic climate in Australia and the failure to most past .98 and close about .985. For a brief moment, Aussie moved above the 76% Fib. retracement on the 2Y daily chart. Given the poor fundamentals, a stop at .959 is likely with a break below indicating the potential for a full 100 percent retracement of the 2Y high of 1.0795.
Another way to play the weakness in the Australian dollar is AUDNZD. After a reason run up, resistance has been located with a downside target of 1.921 and 1.81.