Australian dollar feeling unloved and pressured

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​​​​The Australian dollar remains under pressure as markets keep an eye on the release of Chinese inflation data today.

“It looks like the Aussie dollar is universally unloved at the moment,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.

“The pressure (on the Aussie) will remain due to the US dollar rally, pressure on base metals and the domestic economy looking clouded by worries about Chinese growth,” he added.

That makes the release today of Chinese inflation data extremely important. PPI is expected to pull back a little to 6.9% while the CPI for the year to April is expected to print 1.1%.

According to McKenna, the only good thing he can say about the Australian dollar this morning is that it’s becoming so universally unloved it might finally be able to bounce.

“Yes, I know that sound ridiculous. But after the retail sales report yesterday and overnight US dollar strength there remain little to recommend the Australian dollar to investors and traders except for the chance it could be a little oversold in the short term,” he said.

From his perspective, McKenna said last night’s Federal budget was a solid effort to reset the political and budgetary debate in Australia. It may also help to jettison the partisanship and divisiveness of the 2014 budget debacle and to walk a line right down the centre of the Australian polity.

He added that from a behavioural economics perspective, “I think that is the great gift to the economy of this budget. It takes away uncertainty – for households and businesses – and it’s a lot fairer.”

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At the same time, he said “I strongly believe yesterday’s retail sales release (-0.1% versus 0.3% expected) was a window into the very difficulties the Australian economy could be facing in the year ahead if households look to the repayment of their debt as house price growth slows, stalls, and in some cases reverses.”

And while he said the NAB Business survey results were encouraging in terms of business confidence and employment landscape, he said there are other areas to be considered.

“I strongly believe we are in the midst of a focus transition by Australian households from wealth accumulation to debt consolidation and repayment,”

“Banks are still raising rates out of cycle and that together with the focus on debt repayment will repoint cash from spending to saving and debt repayment,” he said.

McKenna said the Federal Budget’s assumptions on households savings are heroic in the extreme.

“For the economy’s sake, I hope I’m wrong and the government is right. But Australians have built one heck of a debt pile that needs to be repaid at some point,”

“And it’s a good thing the government is funding so much infrastructure because the economy is going to need the boost once housing construction winds down and if households move back into their caves,” he said.

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