AUD/JPY: Waning Global Economic Outlook Hurts the Aussie

The Australian dollar sustained losses against the Japanese yen in the previous Asian trading exchanges as concerns over the global economy continue to dominate the markets, resulting to a decline in commodities. Australia’s new home sales report also came as a disappointment, thereby adding to the already negative sentiment. Meanwhile, the Samurai continues to benefit amid signs of a global economic slowdown. In today’s Asian trades, the Samurai is likely to stay firm against the Aussie.

Sales of newly built homes in Australia dropped by 5.6 percent to 5.682 in July, after posting a 2.8 percent increase in the month before. This is the first drop in new home sales in four months. The slowdown in the nation’s mining industry likewise continues to weigh on the Australian currency. Last week, BHP Billion Ltd., the world’s biggest miner, halted expansion projects in the country, prompting the nation’s Resources Minster Martin Ferguson to declare that the boom in commodity prices is over.

China’s economic slowdown is also taking a toll on the Australian economy. Yesterday, it was reported that industrial profits in China fell by 5.4 percent in July, and sustained weakness in Chinese production is seen to negatively affect the Australian economy. The European debt crisis is also a major threat to the Aussie. “Europe’s debt crisis is lingering and hurting Asian assets through actual damages on exports and risk sentiment. Emerging currencies and risk assets are likely to see some downward pressure,” said Hideki Hayashi, Researcher at the Japan Center for Economic Research in Tokyo.

For the Samurai, it is likely to do better than the Aussie as waning growth expectations trigger demand for its perceived safety. With all these factors, a short position for the AUD/JPY pair is recommended in today’s Asian exchanges.

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