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At the end of Asian trade yesterday we saw a confirmation of the uptrend break, which is a clear sign of the change in trend. The negative pressure continues to mount for the AUD and it is now clear the recently announced budget will ensure a tough few years to come for the local economy.
Westpac consumer confidence was down a whopping 6.8% for May and showed family finances for the year ahead are now at a record low. Add the fact that conditions are only likely to get worse with fiscal tightening kicking in, then Australians are likely to be looking at clenching their wallets even tighter.
Next month’s RBA statement will be key as it gets to react to the fiscal developments for the first time. Iron ore’s drop below $100 will also remain a concern along with China’s deteriorating conditions. Demand for Australian debt had kept the AUD resilient for a while and this is the one positive working in favour of the AUD at the moment.
With near-term momentum firmly to the downside now, I am eyeing the 0.92 level for a bit of support ahead of the 200-day moving average which comes in at 0.9171. For the rest of the week, perhaps China’s HSBC flash manufacturing PMI will be the next key event for the AUD. The market is looking for a slight improvement to 48.4, but judging by the recent form in China, there is a strong possibility we’ll get another disappointment. This would see risk extend its losses along with the AUD in the near term.