Just three weeks ago, on December 11th, the Australian Dollar stood at USD0.7507. Twenty days later, with gold up from $1242 to $1305 it was on a US 78 cents big figure for the first time since October 23rd and today is trading above its 20, 50, 100 and 200-day moving averages. Whilst some of this strength is merely the flip-side of a weak US Dollar, we should note that GBP/AUD is down over six cents since early December whilst AUD/EUR is up from 0.6376 to 0.6505 over the same period.
As the holiday season locally is well underway and even the RBA doesn’t bother with a monthly Board meeting in January, it’s easy to forget that the rest of the world returns to work today. Most of it won’t be enjoying the wonderful sunny climate of Australia’s beaches and in some parts of North America, the mercury on the thermometers is down to minus 20 degrees centigrade. As the Northern Hemisphere shivers and struggles into work, the first piece of economic news to digest will be China’s private sector manufacturing PMI index.
These figures are important for Australia as China is still the number one export destination, the largest market for agricultural goods and the most valuable inward tourism market. Australia needs a strong Chinese economy if it is to grow itself. November’s 50.8 reading for the so-called Caixin manufacturing PMI was the lowest since June and after the Aussie’s recent strong run it is likely going to need some more fundamental support if the positive momentum is to be sustained. Globally, there is a very wide spread of views as to what 2018 holds in store for the Australian Dollar. Morgan Stanley, for instance, sees AUD/USD at 0.67 by the end of next year whilst BoA Merril Lynch has 0.77 and UniCredit goes for 0.82. We’d note that in an environment of generally low asset market volatility and strongly rising commodity prices, the extra yield available in Australia looks very attractive. Experience also teaches us that it looks very attractive until it doesn’t and that reversals can be swift and sudden, especially if global growth concerns take the shine of metals’ prices.
The AUD opens in Asia this first morning of 2018 at USD0.7810 with AUD/NZD at 1.0990 and GBP/AUD1.7310. On the same day back in 2017 it stood at USD0.72 with AUD/NZD at 1.04 and GBP/AUD1.71.