Technicals and fundamentals point to May as a bearish month
The Australian dollar started the week weak on the changing risk tone that we have seen come into the market from last week. The escalation of the US-China trade war rhetoric from the US and finger pointing at Wuhan for the alleged release of the coronavirus has all led to a risk off tone coming into the market. None of which helped the high beta AUD. However, some of that rhetoric has now subsided. The picture for the AUD still remains bleak on the fundamentals.
Fundamentals are weak
- The rating of Australia’s AAA rating is at risk as the S&P rating’s agency has warned
- Australia’s terms of trade hit the worst level last week in more than three years
- According to the International Monetary Fund’s PPP metrics, the AUD is the fourth most expensive currency in the world
- Real yields in Australia are looking to be deeply negative removing a long term support for AUD.
- After nearly three decades without a recession a great deal of excess will be removed in one of the first economic shrinking in a generation.
The AUD has a 2.33% decline in the month of May.
Therefore, the outlook for the AUD looks weak for May, in particular against the dollar which stands to gain on any safe haven bids due to risk aversion.