Will Aussie Hit New Lows With PBOC Gone?

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The Aussie started the week on down note slipping through the 1.0300 figure amidst very thin liquidity and disappointing economic data. With markets in Hong Kong, Japan and China closed for the lunar new year holiday trading in Asia was marked by choppy conditions with sharp early selloff finally settling into quiet, listless trade.

Australian home loans declined by much sharper than expected -1.5% versus 0.1% eyed while the last month’s data was revised downward to 0.7%. This was the third month in a row of declining mortgage approvals indicating that housing demand Down Under may be cooling. Central bank data show housing credit growth in December dropped to the weakest annual pace since records began in 1977.

The disappointing mortgage data numbers dovetail with the recent economic data from Australia which has shown that broad weakening in aggregate demand. As a result Aussie interest rate futures saw an increase to 54% of another RBA rate cut next month. The market is getting increasingly disillusioned with the Aussie as growth Down Under slows and prospects for further RBA cuts increase.

The Aussie has drifted to a low of 1.0265 in early European trade but so far has held above the critical 1.0250 support level. One key factor in the pair’s weakness may be the absence of PBOC which has been a regular buyer of the currency. With China out for the holiday for most of the week, the Aussie may be especially vulnerable to a selloff. A break below 1.0250 suggests a very bearish technical development and may open the path to a test of 1.0150.

Boris Schlossberg
Managing Director

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