Published: Thu, 05 Mar 2009 23:17:57 +0100

Australian Dollar Vulnerable as Risk Aversion Rises

(CEP News) - The rally in the Australian dollar appears to have fizzled as risk aversion once again grips North American equity markets.

The Australian dollar was on steady decline, which started in the Asian session and carried through the North American Session. Thursday's sell off has put AUD/USD in the middle of its recent range at 0.63 USD.

According to currency strategists, news that the Chinese government didn't announce any new stimulus spending caused the rise in risk aversion. Chinese Premier Wen Jiabao spoke on the economy on Thursday, and made no mention of further stimulus plans but pledged to deliver an 8% GDP growth rate in 2009.

That news quickly shifted sentiment for the Aussie dollar, and turned it from one of the top performers in the last few days, to one of the worst.

The North American data did very little for currency markets as equities continued to slide, remaining at 13-year lows. First-time claims for unemployment benefits in the U.S. fell to 639k in the week ending Feb. 28, following an upward revision to the previous week's claims to 670k, according to the U.S. Department of Labor. Claims were forecast to come in at 650k.

Factory orders in the United States dropped further for the sixth month straight in January, but by much less than economists expected. Orders fell by 1.9%, against expectations for a 3.5% drop and following the downwardly revised 4.9% decline in December, according to the U.S. Census Bureau. Ex-transportation, orders are down 0.9%.

With AUD/USD stuck in the middle of the range, George Androulidakis, director of FX trading at the National Bank of Canada said he is relatively neutral on the cross. He pointed out the Aussie dollar is still very sensitive to the risk aversion/appetite trade.

He said he is waiting for either a decisive break above 0.6550 USD or a break below 0.6300USD.

"I think right now the Aussie dollar is oversold on a technical basis," he said. "But because it is sensitive to market sentiment right now it could move rapidly in either direction."

Stephen Koukoulas, Global Strategist from TD Securities said at these current levels the Aussie dollar looks overbought and is expecting to see more weakness in the medium term - not just against the U.S. dollar - but across the board.

"Only a sharp reversal in the recent USD strength is likely to prevent a further AUD sell off, which suggests that AUD weakness is most likely on the cross rates, especially against the EUR, CAD and perhaps GBP," he said.

Euro/USD up 0.06 cents to 1.2546

USD/CAD down 0.03 cents to 1.2909

USD/Yen down 0.14 points to 97.94

GBP/USD up 0.06 cents to 1.4124

AUD/USD down 0.05 cents to 0.6379

Euro/Yen down 0.12 points to 122.88

Euro/GBP up 0.04 pence to 0.8885

GBP/CAD up 0.06 cents to 1.8231

CAD/Yen down 0.12 points to 75.86

Euro/CAD up 0.09 cents to 1.6195

The U.S. Dollar Index is up 0.53 points to 89.11

By Neils Christensen, neilsceconomicnews.ca, edited by Megan Ainscow, mainscow@economicnews.ca