From a purely directional perspective, anticipating the Aussie’s next big move at this juncture is more problematic than usual.Those of a bearish persuasion continue to focus on a combination of domestic and international forces. Regarding the latter, global growth expectations continue to be revised downwards, as the IMF recently affirmed. Europe’s sovereign debt and banking crisis is still hanging over the global economy like a dark cloud, resulting in considerable hesitation on the part of financial decision-makers. In addition, China’s growth picture looks much less assured these days, a development that really matters down under because the mining sector is so incredibly reliant on demand from the world’s second largest economy. Domestically, the economy has wobbled over the past year, with the non-mining sector in recession and even the mining sector now concerned about forward demand. In response, the RBA reduced rates by a cumulative 75bp in May/June; much more is expected from them in the second half of this year. Business confidence remains subdued, especially in the mining sector, and company employment and investment intentions are cautious.

Also of concern for the Aussie bears is the deterioration in the technical picture. After briefly penetrating both the 100d and 200d moving average last week, the AUD has rather quickly dipped back below these key technical chart-points. There was a similar challenge to these two critical moving averages in late April, when again there was rapid rejection.

For those who believe the Aussie’s glass is half full, the sharp recovery in June from highly oversold levels was encouraging. Buying interest over recent weeks has been both healthy and diversified – exporters were very keen below parity, as well as sovereign wealth funds (who continue to largely avoid the euro in terms of new money) and real money managers. Australia retains a very lofty sovereign debt rating which is providing the currency with considerable underlying buying support in a world where the ranks of top-rated sovereigns is thinning rapidly.

Also, some recent indicators suggest that the economy might be holding up better than expected. First-quarter GDP was well above expectations and employment growth in the first half was remarkably decent. Finally, traders reversed their very painful shorts last month, and are now much more neutrally-positioned.

As such, the Aussie is developing into a proper arm-wrestle, one that may not be resolved any time soon.