The Australian dollar fell to a three month low, breaking the 1.0200 barrier for the first time this year as sentiment towards the commodity currency continued to sour on fears that the economy Down Under is beginning to slow materially. Earlier report on Construction Work Done showed a surprising contraction of -0.1% versus 1.5% eyed. This was the first decline in the sector in more than a year.
The drop in construction was the result of decline in engineering work involving mines, bridges and roads. Residential construction continued to expand at 1.7% rate. The sharp drop in engineering construction is precisely the reason investors are becoming concerned about the Australian economy.
As the mining boom fueled by demand from China comes to an end, the Australian economy must find alternative path to growth. As we’ve noted many times before, growth could become increasingly difficult given the country’s elevated exchange rate and negative terms of trade. Last night an S&P report on the country noted that while its AAA rating remained secure for now, Australia faced the prospect of a downgrade if demand from China slowed materially or if the country’s housing sector saw a sharp fall in prices.
The Aussie remained under pressure through most of Asian session trade and finally cracked below the 1.0200 level as European dealing came on line. The pair has some support at the 1.0150 level but reported selling by real money accounts and speculative shorts could continue to weigh on the unit. A break below the 1.0150 level could trigger further panic amongst investors and open the path towards possible test of parity.