Asia-Pacific currencies have been on a wild ride
since the start of the year.
On the worst day, the Australian dollar slumped by more than 3
per cent in a matter of minutes, as investors were spooked
by economic data from China.
A fresh stream of positive events,
from China resuming trade talks with the US
to the Federal Reserve's comments on interest rates,
has given some support to the Aussie dollar
and other Asian currencies, but dark clouds
loom on the horizon, leading investors to question
what lies ahead for the Australian currency.
Is it time to short the Aussie dollar?
China's economy is slowing, and that
is bad news for Australia, which is
a key exporter of commodities to the world's
second largest economy.
China shocked the market when it revealed
that exports and imports fell sharply in December.
Imports of iron ore also fell for the first time
since 2010, dealing a blow to commodity exporters.
Australia's exposure to the fortunes of China
suggests the currency is set for a rocky ride in 2019,
but a recent spate of stimulus to prop up the Chinese economy
should provide some support.
If you want to know what is going
to happen to Asian currencies, you
need to pay attention to the US dollar.
And that means listening to Federal Reserve chairman Jay
Powell.
With the muted inflation readings
that we've seen coming in, we will be patient
as we watch to see how the economy evolves.
Australia's obsession with property
has helped fuel a multi-decade boom,
and in Sydney and Melbourne at least, prices
are among the most expensive in the world.
But last year, they started to turn.
The Reserve Bank of Australia has expressed concern,
asking banks to build up their capital buffers.
The risk is that property prices slump, leaving banks exposed.
That would hurt the economy and, in turn, the Aussie dollar,
especially as economic growth is already slowing.
All eyes are on the Reserve Bank of Australia,
and whether it will cut rates to fire up the economy
or keep its powder dry.