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AUD/USD: Aussie rebounds despite weak business confidence

H.S. Borji
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The Australian dollar edged higher against its US counterpart Tuesday, shrugging off disappointing business confidence data as the markets continued to absorb weaker than forecast US employment figures and a bigger uptick in Chinese exports.

The AUDUSD climbed 0.47 percent to 0.8667, bouncing from an intraday low of 0.8592. The pair is testing the initial resistance at 0.8665. On the downside, support is descending from 0.8588. The pair is trading just above the 50-day exponential moving average (0.8863) after plunging to a four-year low last week.

The Australian dollar is highly vulnerable to commodity prices. Weaker commodities helped propel the greenback last week, helping the AUDUSD decline nearly 2 cents.

In economic data, Australian business confidence fell to a 12-month low in October despite stronger operating conditions, suggesting global headwinds and domestic uncertainty continue to weigh on business prospects.

The National Australia Bank’s latest business confidence index declined to 4 in October, down from 5 in September and 7 in August. The monthly index, which is based on a survey of 350 businesses, is used to gauge the strength and overall health of the Australian economy.

The NAB said the declining exchange rate was having mixed results.

“While the falling AUD may have helped many sectors, it is probably also behind the large falls in the wholesale and transport/utilities sector,” the NAB said in its press release.

The NAB raised its 2014-15 GDP outlook to 2.9 percent from 2.8 percent and kept its 2015-16 outlook the same at 3.2 percent.

The Australian dollar was buoyed earlier in the week by stronger than forecast Chinese exports. The world’s second-largest economy posted a $45.41 billion trade surplus in October, up from $31 billion the month before, as exports rose 11.6 percent annually. However, exports were down from September’s 15.3 percent annual growth pace.

A sluggish domestic economy kept demand for imports at a minimum. Imports rose only 4.6 percent annually in October, compared to 7 percent a month before.

Chinese exports have been rising since the spring on the heels of a stronger US economy, which has boosted demand for consumer electronics and other products. According to analysts polled by The Wall Street Journal, higher demand for Apple’s iPhone 6 helped bolster China’s export sales last month.

As Australia’s largest and most influential trade partner, China plays a major role in pricing the Australian dollar. China accounts for approximately 30 percent of Australian exports and nearly one-fifth of imports.

The National Australia Bank said last week the Australian dollar could edge lower in the coming months. NAB analysts said the AUDUSD pair could end the year in the 85-86 region, although a stronger US dollar could lead to a clean break below the 85.00 level.

The AUDUSD has declined 7.4 percent since September 8.

Despite its recent weakness, the Australian dollar “remains high by historical standards and, in trade-weighted terms, is above the level seen earlier in the year,” the Reserve bank of Australia said last week in its quarterly monetary policy statement.

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