Aussie Coming Under Pressure

The Australian dollar was faring better than most currencies against the US dollar today, but has come under some pressure after European markets closed. In addition to weaker commodity stories, one of the weights on the Australian dollar may be in a story in the Australian press suggesting that contrary to what Chinese officials have said, the bilateral relationship is strained. Not only is the bad taste from the Rio Tinto affair still lingering, but the Chinese government's willingness to assist state-owned enterprises in renegotiating losing derivative positions, raises questions about the sanctity of contracts.

The press report suggest Australian officials have made it clear they do not want state-owned enterprises from taking larger stakes in Australian mining companies. The director of the Foreign Investment Review Board expressed a clear desire for Chinese SOEs to limit their stakes in mining companies to 15%, though for greenfield projects the stake can be up toward 50%. In recent weeks, several proposed Chinese investments have been rejected, but many observers have instead focused more on the tire duties the US has imposed, even though as one of the conditions of China joining the WTO, these kind tariffs were allowed, without having to demonstrate unfair practices; an import surge was sufficient.

In any event, the Sino-Australian relationship is strained and the press report provided a timely reminder and, may, along side weaker commodity prices and a stronger dollar, have encouraged long liquidation of the Australian dollar in the last couple of hours. If the $0.8650 support level break another quick half cent decline would be likely. However, momentum indicators are getting over-stretched to the downside , suggesting the bulk of the decline may be behind us. A move back above $0.8700 would help neutralize the negative technical tone.
Aussie Coming Under Pressure Aussie Coming Under Pressure Reviewed by magonomics on September 24, 2009 Rating: 5
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