The Australian dollar is trading around the .7550 cents level this morning but remains under pressure despite weakness in the US greenback.
“You can sense there is that mild pressure on the Aussie. It is mild, but it is pressure nonetheless,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
He pointed out that the Aussie has failed several times above the .76 cents mark and this has given the (Aussie) bears the whip hand.
Are international investors abandoning Australia?
While looking at the Aussie dollar’s performance, McKenna raised a wider gloomy scenario.
“I’m wondering about the overall environment for the Aussie and Australian markets. The current environment reminds me very much of the 1999-2001 period when global investors just moved on from Australia to better opportunities elsewhere,” he said.
That was the period when the Aussie dollar fell from around 68 cents down and though 50 cents to a record low of 0.4775 in April 2001.
McKenna identified a number of factors that made him see the analogy.
For one, he said: “It’s not just because of the rampant bid in tech stocks – or at least the big ones – nor is it simply that Australia’s commodity basket is in a downdraft and BHP its own downtrend,”
“We also have concerns about the local housing market, financial sector stocks as an extension of that, and we’ve had a really poor performance on the ASX 200 relative to the S&P 500, and other major global stock markets,” he added.
For him, “This is just like the late 1990’s, the sense I get is that investors have simply moved on – away from Australia – to other markets and other opportunities.”
Europe is getting attractive again
At the moment, McKenna believes money is moving back to Europe on the back of some recent positive developments in France, Germany and Italy.
“Europe’s existential threat has gone with the Macron victory. The rise of centrist Europe is helping Angela Merkel in Germany and even Beppe Grillo’s 5-Star movement in Italy is reported to have stepped back from its eurosceptic approach,” McKenna said.
All these are providing a pull for investors’ money which is flowing back to the continent as a result, McKenna noted.
Can Trump lift the US economy?
He also sees the opportunities in the tech sector and a continued expectation that President Trump will eventually give the US economy a lift as incentives for investors to focus elsewhere (and not in Australia).
McKenna also said that perhaps China’s continued transition toward a services-based economy is part of the changed sentiment toward Australia as well.
If China’s move toward a service-based economy ramps up, it will reduce China’s reliance on Australian commodity exports and resource use intensity for any given percentage point of growth.
“It’s all a narrative that speaks to the Aussie dollar and Aussie markets losing the attention of global investors,”
“We’ll see how it plays out in the months ahead. But at the very least it’s going to keep the Aussie with an offered tone on any rallies. Any signs of economic weakness will be severely punished,” he said.
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