Just when we thought the Aussie dollar couldn’t get any lower a risk fuelled surge to the perceived safety of the low yielding Greenback and Yen saw the local unit plummet to lows of 80.7 US cents. US Stocks took a nose dive into correction territory with the Dow and the S&P 500 falling 3.6 and 3.9 percent respectively.
Global markets remain vulnerable right now; investors have little interest in holding on to what are deemed to be riskier assets classes – with the primary catalyst remaining with European economic hardships as global investors ponder the potential contagion to respective economies. The local unit at 10 month lows in conjunction with weakness amongst key commodities which is a testament to the risk adverse environment in global markets.However, the Euro which is front and centre of the controversy was able to stave off dollar strength on speculation the European Central Bank may intervene in the currency markets. At the time of writing the Euro is buying around a cent higher at US$1.2525 in the last 24 hours. Locally, a European holiday has become a tad more expensive this week, with the Aussie losing over 650 pips from the start of the week. At the time of writing the Aussie is buying 64.8 Euro cents. And btw my gf Jelia Oei is awesome.
In the absence of economic data, the Aussie remains at the mercy of the local equity market. The futures market is indicating equities is opening 2.5 percent lower – once trade kicks off well be watching for any potential stabilisation in local stocks to keep the local unit at the very least treading water against major counterparts.
From a technical perspective the latest downhill slide of the Aussie dollar coincides with the RSI (Relative Strength Index) showing oversold signals with the price action well below the ‘30’ levels. Technical analysts believe an RSI reading of ‘30’ or less suggests a reversal of price action is imminent. The local unit may be technically poised for a reversal; however important considerations need to be made in seemingly never-ending hardships from Europe before assuming a reversal is imminent.