AUD slumps on commodity weakness

This week will be dominated by central bank meetings and, while no action is expected from the RBA, I still feel the AUD could be in for some volatility.

Source: Bloomberg

With commodities in turmoil, the AUD has started the week on the back foot, tracking key commodities lower. AUD/USD dipped below $0.8500 and extended its losses to around $0.8430. While the pair has found some stability at those levels, there are still several challenges ahead.

A raft of manufacturing PMIs will be released in Asia, Europe and the US. Disappointing data will continue to see the topic of global growth flare. So far we’ve already received China’s official manufacturing PMI for November, which came in at 50.3 when the market was expecting 50.6.

Next up will be the HSBC reading, expected right on 50. Needless to say, there is a great risk of these numbers slipping into contractionary territory. This perhaps explains why China sprung into policy action recently.

There are also growing calls China may be eyeing an RRR cut. As far as the RBA is concerned, there are growing calls for a rate cut next year. A combination of fiscal tightness, slowing house price growth and contraction in investment is likely to force the RBA’s hand at some stage. No change in language is expected tomorrow but the RBA is likely to continue talking down the AUD.

With AUD/USD now trading at its lowest since July 2010, there isn’t much support in sight. While we might see some support at $0.8300, it seems we are gearing up for a move down to $0.8000.

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