The Aussie dollar has been on a roller coaster, and many investors are scrambling to figure out its trajectory. Fund managers have recently hit a record net short position, yet experts foresee a rebound. This paradox is framed by several significant factors, primarily China's economic policies and Australia's domestic employment data. Understanding these influences is pivotal for traders looking to capitalize on the Aussie dollar's potential turnaround.
The Aussie Dollar's Recent Plight
The Australian dollar recently plummeted to a 10-month low of 63.57 cents against the greenback. This drop was a result of numerous asset managers holding a record net short position of 94,107 contracts on the Aussie dollar, making it the worst-performing G-10 currency this quarter. The currency’s weakening has primarily been due to growth concerns in China and higher yields in the U.S.
Bright Spots on the Horizon: China and RBA
Strategists are now pointing towards a rally in the coming weeks, predicting the Aussie dollar will end the year at 66 cents and could rise to 68 cents by March. Simon Harvey, head of FX Analysis at Monex Europe, suggests that the RBA may even consider another rate hike by December. He notes, “Chinese officials are more likely to embark on more direct stimulus if the 5% growth target seems unattainable, which would immediately boost risk sentiment.”
The Crucial August Employment Data
Adding another layer to this complex picture is Australia's forthcoming August employment data. Recent job losses, notably 24.3k in July, have investors on edge. However, experts expect a recovery, with Bloomberg's survey indicating a 25.5k increase in employment. A rebound in employment numbers could invigorate the Aussie dollar, especially if it aligns with China's stimulus measures.
Expert Opinions and Strategic Moves
Valentin Marinov, Head of G10 FX research & strategy at Credit Agricole CIB, suggests caution. "The Aussie’s downside may be limited as many negatives are priced in, and AUD/USD is already looking undervalued relative to its short-term and long-term value," he remarks. Given this expert opinion, here’s what traders and investors might consider:
Be Alert: Keep an eye on China's economic policies and the RBA's potential rate hikes, as these could significantly impact the Aussie dollar.
Diversify: Don’t put all your eggs in one basket. Consider other G-10 currencies and emerging markets that may offer better returns.
Stay Updated: The release of Australia’s employment data will be a critical market-moving event. Be ready to adjust your trading strategies.
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Conclusion
The Aussie dollar's future hinges on a complex interplay of international and domestic factors. While China's potential stimulus measures and the RBA's rate decisions could provide a much-needed uplift, the forthcoming Australian employment data will also play a crucial role. Traders and investors should heed expert opinions and prepare for multiple scenarios to navigate through this turbulent period.
Disclaimer: Trading involves risks. Always consult with your financial advisor before making any trading decisions.
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Source: Bloomberg, Reuters, Marc to Market
Upcoming Key Asian Economic Data:
Sept. 12: Australia Consumer and Business Confidence
Sept. 14: Australia Employment Change and Unemployment Rate
Sept. 15: China Retail Sales, Industrial Production