Oz economy to lose momentum

Note: This section contains information in English only.
Source: Dukascopy Bank SA
"This month's Leading Index highlights just how much these and other shifts have affected growth momentum with a slowdown likely,"
-Matthew Hassan, Westpac senior economist


Markets are already pricing in dovish RBA and a potential rate cut, as economy is struggling to pass the transition phase. The AUD/USD pair was not able to move above 0.9440 level and it seems that it can be considered as a key level for long traders, especially when having a look at pair's historic performance. While technicals on a short– and medium-term time frames are supporting a retest of this year's high, aggregate indicators on a monthly chart are suggesting the Aussie will depreciate.

Fundamentals are also speaking in favour of a move towards 0.87 level, as Westpac leading index, which reflects the potential performance of the economy in three to nine months, was not able to deliver a rosy outlook. The leading index picked up in May, however, remains too low to indicate a below-trend rate of economic expansion during the rest of 2014 and the whole 2015. Companies are also feeling the pinch, especially with their speed in paying bills hitting the slowest in three years. The indicator climbed 0.37% over the observed period, however, still remained below zero, suggesting the pace of growth will be below the trend. Weaker sentiment is directly correlated with consumers spending and the housing market, which are vital for the economy. The latest findings echoes with the annual budget and RBA's statement, which both are pointing at a loss of momentum of the resource-rich economy.
© Dukascopy Bank SA

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