AUD bulls have enjoyed quite a rally since May 2012. However surprising to me, the market has determined that the AUD will no longer benefit from high-priced commodities due to a slowdown in demand. This sagging demand has begun to weaken prices. We find this evidence as over the past several months we have seen inflation tick down in many countries. David Bassanese writes that,
the mining boom is not over, to be sure, but its contribution to growth is waning and should go into reverse in around a year’s time…I am also warming to the view that the transition back to the non-mining sectors will need to be aided by much lower official interest rates – potentially another one percentage point cut in the coming year…
In anticipation of a slowing economy and rate cuts from the RBA, the market has turned decidedly bearish on the Australian dollar. And this is just the beginning of the new trend. Since the bottom at 1.4700 in July, the AUD has weakened tremendously against the GBP as it heads lower across the board. The $AUDUSD and $EURAUD have also breached key levels at 1.05 and 1.20 respectively. Both pairs closed the week well beyond those levels. The $GBPAUD was no different. After serving as key resistance, this week’s break above 1.5250 led to a breakout of over 150 pips. $GBPAUD ended the week well above 1.5250 and remains bullish to open the week. However, price could chop around 1.55. A daily close above 1.5750 targets 1.60. A close below 1.55 targets 1.5250. Trade what you see.
Disclosure: Long $GBPAUD