By Rudi Filapek-Vandyck

It would appear my suggestion last week that a new trend for the US dollar might have started (weaker USD versus stronger euro) is rapidly attracting similar views across the globe. On Friday, US based trader Dennis Gartman acknowledged his mental resistance against such view seems futile.

Also, chartists here and there are increasingly joining the weaker USD view, including the team of technical market analysts at Barclays Capital. Alas, the latter analysts also suggest that contrary to “normal” assumptions that a weaker greenback works in favour of higher commodity prices, this time such assumption might not prove accurate in the short term.

The team at Barclays believes global growth concerns will continue to weigh on commodity prices this month.

The team of FX experts at National Australia Bank are on the same song sheet as far as the short term outlook for commodity prices goes, they thus remain cautious as far as the outlook for the Aussie dollar is concerned.

Last week's bout of risk aversion has above anything benefited the Japanese yen, reports NAB, and the AUD has not just weakened against the USD, but against the euro and the Swiss Franc as well. All in all, NAB's risk-appetite index fell sharply on Friday, reaching a nine-day low of 46.9%, down from 52% on Wednesday. The long-term average is 50%, report the analysts.

They add concerns over a hard landing in China have pushed the spot price of iron ore to its lowest level since December of last year, down 18% over the past three weeks. NAB expects China to have a soft landing; however, this won’t be confirmed until around the December quarter, say the analysts, so they expect the spot iron ore price not to recover much until then.

NAB's “fair value” estimate for AUD/USD currently sits at 0.8450 and the analysts' bias remains for a further decline in the currency. They point out the Aussie is currently right on its 20-day moving average of 0.8654, with technical support at 0.8570 and (fierce) resistance at 0.8875.

Also, the Australian Federal Election will be held on Saturday August 21 and the latest opinion polls suggest a close race, although bookmakers have installed the Labor Party as clear favourites, note NAB analysts.

They highlight the Liberal-National Party opposition needs to win an additional 17 seats to form government (requiring a 2.4% swing from the November 2007 election result of ALP 52.7%, coalition 47.3%).

In addition, the analysts note the Australian CPI will be released on July 28 and the next RBA Board meeting will be held on August 3, providing the possibility of the central bank hiking interest rates in the middle of the election campaign. This would imply a repeat of what happened in early November of 2007.

Historically, report NAB analysts, elections have not had much impact on the AUD unless resulting in a hung parliament.

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