AUD hit by a Confluence of factors - AmpGFX

Analysts at Amplifying Global FX Capital explain that a confluence of factors appears to have seen a sudden drop in the AUD on Wednesday as it was starting to look expensive relative to CAD and NZD, and the market may have seen some synergies with the banking/mortgage/housing developments in Canada and Australia.

Key Quotes

“Australian bank share prices fell sharply on Wednesday, it seems in response to the earnings results of ANZ bank, but perhaps also with one eye on the weak bank performance in Canada and evidence of a peaking in the housing market.”

“Australian mortgage insurer, Genworth reported a jump in delinquencies in its portfolio by 18% in Q1 from a year earlier.  It appears that non-performing loans at banks are rising albeit from low levels.”

“Commodity prices, particularly for metals (copper down 4.5% and iron ore down 6.6%), fell sharply on Wednesday.  This may reflect a pullback in China’s manufacturing PMI indicators reported on Sunday and Monday.  Chinese interest rates and corporate bond yields have been creeping up to new highs for the year, while Chinese equities and currency have been relatively weak in Asia, suggesting nerves are growing over regulatory efforts to contain credit excesses in China.”

“The USD was also firmer after the FOMC meeting on Wednesday tended to dismiss recent weakness in Q1 indicators as transitory, suggesting it remains on the same path of policy tightening, largely in place since December last year.”

“The AUD has fallen to a new low since January, and it may continue to trend lower.  However, there are two-way risks with US economic reports mixed, Trump policy agenda facing and uphill battle in Congress, Infrastructure fiscal spending expected to be announced in the Australian budget next week, stronger global growth trends, and the likelihood that China will act to maintain a stable growth outlook ahead of a twice decade leadership shuffle later this year.”