As we were suggesting yesterday, the 1.0270 area was likely to represent a significant resistance level for the Aussie, although even we did not anticipate that it would fall back as rapidly as it has. The trigger for the sell-off was obviously the poor June employment figures out overnight, although the selling has simply continued over the course of the London morning down to a two-week low of 1.0123. The decline in jobs in June has reawakened expectations regarding further RBA action over coming months, with bond yields down 10-15bp along the curve. Sellers of the currency have also been encouraged by a litany of poor earnings data from Chinese companies which partially explains the sluggish performance of Chinese equities. In addition, there has been some squaring up of significant short EUR/AUD positions.
How much further this sell-off runs is another question. The Aussie could well remain an arm wrestle in the near term, with sharp moves in either direction reversing quite quickly and without much net change.
