Aussie still stuck in consolidation

Friday, Jun 26 2015

It is another uneventful session with no data releases from Australia, with Aussie edging down, but remaining within recent consolidation range in an Asian part of the session. Part of the downward pressure on the Australian dollar comes from China, Australia’s largest trading partner. The Chinese economy is showing signs of weakness nowadays. In May, China’s exports declined 2.8% year-over-year, after a 6.2% drop in April and a staggering 14.6% drop in March. Imports slipped a dramatic 18.1% in May and 16.2% in April.

Manufacturing wasn’t a help, either. The Purchasing Manager’s Index (PMI) has been below 50 for three consecutive months. This indicates that the manufacturing sector in China has been contracting. China’s slowdown will likely be felt around the world. This could have a severe impact on Australia, who has been selling iron ore, coal, and other minerals to China in huge quantities.

Furthermore, gold prices begin to fall. As Greece is looking less likely to leave the euro and the market’s attention goes back to the stronger U.S. economic data and the timing of the rate hike, the price of gold have given up all their gains from last week. The managed money total net combined gold positions have fallen 4.25% during the week as the short positions rose 7.27% after a jump of 31% the week before.

In addition, the gold prices in the local markets in India and China are trading at a discount. The better news according to Barclays is the surprising progress in the Southwest monsoons in India, which will likely support the gold demand in three months’ time.

Aussie is currently being traded few points above 0.7720 level. Pair is likely to find support around 0.7680 area and resistance above 0.7770 level. Later today, in the US session, revised consumer sentiment figures are scheduled for a release.

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