Asian Risk: Aussie and Kiwi down?

Could commodity based exporters like Brazil, Russia and Chile be the next in this down trend?

Do you call this currency: Australian Dollar or Australian Yuan? The same applies to the New Zealand Dollar or Yuan.

Besides all the exciting and potentially damaging political news flowing from China, we got some other surprising news that suggests growth in the region is likely worse off than many now believe.

The bad news came from the two major Western commodity-based currency nations in the region — Australia and New Zealand. This news may be confirming the technical picture for both currencies: Both appear vulnerable and could soon tumble. Let’s take a look …

I often refer to Australia as a satellite country of China given the inordinate amount of its growth driven by Chinese raw materials demand. The central bank there — Reserve Bank of Australia — cut interest rates by 50 basis points. Traders were expecting a rate cut, but only 25 basis points. The Aussie plunged on the news.

And here’s what Reserve Bank Governor Glen Stevens had to say:

“This decision is based on information received over the past few months that suggests that economic conditions have been somewhat weaker than expected, while inflation has moderated.

“In Australia, output growth was somewhat below trend over the past year, notwithstanding that growth in domestic demand ran at its fastest pace for four years.”

This almost sounds tame when you consider housing prices in Australia are starting to accelerate lower, unemployment is rising, and the latest Purchasing Manager’s Index (PMI) for both manufacturing and services are contracting!

I don’t think it’s much of a stretch to say the latest deceleration in China’s economic growth is hitting Australia hard. And the Aussie is feeling the pressure, approaching a key support level — 1.0221

The Kiwi is the name currency traders use for the New Zealand dollar. The Kiwi got hit hard on Thursday on surprisingly bad employment news. New Zealand’s unemployment rate rose to 6.7 percent from 6.3 percent. Most analysts thought the unemployment rate would remain unchanged.

Economists are now expecting a rate cut by the New Zealand central bank when they meet in June. But traders aren’t waiting for June … they sold the Kiwi on Thursday.

Based on the commodity-currencies in Asia, it appears economic growth is clearly decelerating. If this proves true, both the Aussie and Kiwi could have plenty of room left to fall against the U.S. dollar given that both currencies have enjoyed the “Asian risk premium” for years.


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