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More Aussie Downside

Currencies | Sep 21 2015

By Ilya Spivak, currency strategist, FXCM

The Australian Dollar advanced for a second consecutive week after finding support just below the 0.69 figure against its US counterpart. A recovery in risk appetite looks to have been the driving catalyst behind the advance, with prices tracking higher alongside the MSCI World Stock Index, a proxy for global sentiment trends. A quiet economic calendar on the domestic front is likely to see external factors remain at the forefront in the week ahead.

Price action in the aftermath of last week's FOMC monetary policy announcement suggested the central bank's reticence to begin stimulus withdrawal unnerved investors. The statement accompanying the rate decision warned that "recent global economic and financial developments may restrain economic activity," alluding to market-wide tumult that broke out in mid-August. The threat of slower US growth against a backdrop of lingering weakness in the Eurozone and China undermined the outlook for global performance at large, weighing on sentiment.

This narrative is likely to carry forward in the week ahead, with markets monitoring a steady stream of activity data from the world's major output nodes for direction cues. An ample helping of US indicators including home sales, durable goods orders and flash PMI figures will inform on the state of the world's largest economy. September's preliminary PMIs are also due from the Eurozone and China.

On balance, global economic news-flow has increasingly disappointed relative to consensus forecasts since late August out of the G10 and emerging-market economies alike. This suggests analysts' models of global output trends have tended to be more optimistic than reality has warranted, opening the door for additional downside surprises ahead. Soft outcomes offering additional fodder for worldwide slowdown fears is likely to keep risk appetite under pressure, weighing on the Aussie.


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