Currency investors should consider selling AUD/USD this week, advises Barclays Capital in its weekly FX pick to clients. The trade is macro-technical driven.
"While this week's RBA board meeting minutes (Tuesday) are
unlikely to provide much new information, renewed weakness in global
commodity prices should weigh on a stillovervalued AUD this week.
Recent price declines should highlight Australia's large exposure to a
slowing Chinese economy and the inability of its shrunken manufacturing
export sector to compensate without further currency weakness.
We expect this week's wage price index (Wednesday) to
reinforce the RBA's view that inflation will remain low (Barclays:
0.5%q/q; last: 0.6%), although the downside is that weak wages
remain a constraint on consumer spending. That said, consumers have felt
confident enough to spend at a moderately faster rate than income for
some time now, saving at a slower rate as rising house prices have
underpinned rapid growth in household wealth," Barclays projects.
"Consumer surveys suggest that we could see a pickup in the pace of
spending. At the same time, jobs growth has remained strong, running at
an annual rate of 2%, while petrol prices have slumped again. This
suggests to us that the fundamentals are improving at just the right
time for demand, in that November and December typically account for 20%
of retail spending in a year. Improving domestic economic conditions,
especially in light of the latest strong employment report, support our
recent view that the AUD is likely to outperform EUR even as Fed normalization lifts the USD against major currencies," Barclays argues.
"Our technical strategist is also bearish AUDUSD against
resistance near 0.7225 and looks for a move lower toward the
0.6935/0.6895 lows. A breach of the latter would signal further downside
toward our greater targets near 0.6250," Barclays projects.
Barclays maintians a short AUD/USD position in its portfolio from 0.7091 targeting a move to 0.6250.
