Daily Economic Commentary: Australia

[ForexGump]

Last Friday, we saw the AUD take quite a hit when it lost all of its gains from the day Thursday. Does this mean that Thursday’s strong rally was merely a retracement of the overall downward trend? It seems as if the prospect for global recovery is starting to abate, putting the AUD in a very delicate position. Concerns of a “double-bottom” recession are starting to surface... which isn’t really doing the AUD any good.

Australia’s economic cupboard will be pretty light this week. In any case, here are the details: National Australian Bank business confidence for June tomorrow (1:30 am GMT), the Melbourne Institute leading index for May on Wednesday (1:00 am GMT) and finally, the import price index for the first quarter of 2009 on Friday (1:00 am GMT). The thing is, unless these reports show extremely surprising results... or there is a dramatic shift in market sentiment, the AUD would most likely be vulnerable to selling pressures.

[ForexGump]

Just when it seemed like the AUD was headed for new lows, it bounced back yesterday, as it did a kangaroo like jump after hitting the lower bound ATR yesterday. The AUDUSD pair hit .7703, before jumping quickly during the US session, closing at .7833. The Aussie was boosted by analysts upgrading their outlook on US banks’ earnings. This boded well for stocks and commodity based currencies.

Early this morning, at 1:30 am GMT, the NAB Business Confidence report was released. The report measures business confidence on current market conditions. The surveyors ask businessmen on their thoughts regarding the economy, as it helps give insight to their future spending, hiring and investment. Today’s report had a score of 4 for the month of June, an improvement from the previous month’s score of -2. Scores above 0 indicate optimism while scores below it reflect pessimism.

Tomorrow, at 1:00 am, the Melbourne Institute will be releasing its Leading Index m/m report. The report is expected to have increased by 0.7% in the month of May. The index rose by 0.4% in April.

Right now, the AUDUSD pair seems to be consolidating as there is strong support / resistance around .7850. Last week we saw risk aversion play a key role in weakening non-USD currencies. Will the pair remain in range? Or will risk tolerance boost the Aussie to new highs?

[ForexGump]

Surf's up, dude! Did you catch that mighty big wave on the AUD/USD yesterday? I was stoked! And so were Australian businessmen as their confidence index turned positive for the first time since December 2007.

The National Australia Bank reported that business sentiment rose from -2 to 4 in June. Rising business confidence boosts hopes that Australia is strolling along the path to economic recovery. This report sent the AUD/USD sailing towards the 0.7950 area.

The pair's rally was also fueled by the surge in risk appetite as the US released better-than-expected PPI and retail sales data. As investors digested the increased prospects of an economic recovery, they moved their funds to higher-yielding assets and away from the USD.

If you're on the lookout for the next big wave, then watch out for Melbourne Institute's leading index, which is scheduled for release at 1:00am GMT today. The reading has just climbed from 0.3% to 0.7% in May, indicating that the nation's economic indicators are improving. If the reading for June takes another big leap, the 0.8000 mark may be the pair's next target.

[ForexGump]

Zoom! The AUD took a one-way drive up north yesterday as it blew past the USD and the JPY, leaving dust on its trails. It paused a little during the mid-part of the Asia session. It then stepped on the gas to make time during the start of the Euro session up until the closing of the US trading hours.

Australia’s Westpac leading index in May unexpectedly fell by 0.2%. The previous month’s gain was also revised down from 0.7% to 0.5%. The account measures the growth of a composite index which includes nine (9) different economic barometers of Australia. The composite’s components are related to consumer confidence, housing, stock prices, money supply, and interest rate spreads. A decline in the figure suggests a likely pause in the economy.

The announcement put a little strain on the AUD’s rise. Risk appetite, however, was very strong and investors took this as an opportunity to buy up higher yielding currencies such as the AUD.

No top tier economic reports are due today in Australia. The AUD, however, may rise on China’s economic growth which will be released at 3:00 am GMT. China’s GDP for the second quarter of 2009 is expected to rise by 7.8% after rising by 6.1% during the last quarter. Note that Australia's commodity-heavy export industry is dependent on China’s demand for iron ore and other minerals used in industrial production.

The AUD may also be boosted further if risk tolerance remains in the US trading session.

[ForexGump]

The AUD failed to extend its gains versus the USD yesterday as the 0.8050 price level held up quite well. The question that must be asked right now is this: Have traders satisfied their appetite for risk or will we see the AUD soar once again as the trading week comes to a close?

The import price index for second quarter of 2009 just released printed that the average price of goods purchased by importers fell 6.4%, lower than the 6.0% fall initially predicted. This was the second consecutive quarter of a price decline... Will we see a reversal in sentiment today? With US corporate earnings just around the corner, anything can happen. We’ll just have to wait and see!

[ForexGump]

Another day of consolidation for the Aussie, as bullish surfers took a break as the week came to a close. The AUDUSD pair actually closed a little lower on Friday, closing the week at .8018. Could this be the end of the recent rally? Or merely a retracement?

A report released on Friday showed that import prices fell by 6.2% in the 2nd quarter. The reason behind this was the strong appreciation of the Australian dollar as of late. One thing to note is how this will continue to affect trade. If the strong rise of the Aussie dollar causes exports to go down, will we see the RBA make moves to weaken the local currency in order to stimulate more demand for Australian exports?

Early today, the producer price index quarterly report was released. The report came out much worse than expected, as prices fell by 0.8% during the last quarter, much more than the forecasted 0.2% decline.

Tomorrow, the minutes of the latest Monetary Policy meeting are due at 1:30 am GMT. This report could have some insight as to what direction the RBA is leaning towards for future policy.

[ForexGump]

Whoa! After yesterday's lousy PPI report, the AUD/USD still has enough energy to stay on that huge wave of risk tolerance from last week. Will it ever get wiped out?

AUD bulls seemed oblivious to Australia's worse-than-expected PPI data, which recorded a 0.8% drop quarter-on-quarter. The AUD/USD staged a strong climb from 0.8000 to 0.8180 while the AUD/JPY rose from 74.66 to the 77.00 area. Perhaps traders are positioning ahead of the RBA monetary policy meeting minutes which are set for release at 1:30 pm GMT today.

As more and more signs of improvement are seen in Australia's economy, many expect the RBA to keep interest rates on hold for the remainder of the year.

Also due today are new motor vehicle sales, which is expected to have a minimal impact on the AUD. Last month, new motor vehicle sales were up by an astounding 5.4%. If this month's figure shows a sustained increase, then this is indicative of rising consumer confidence... yet another reason for the AUD to stay on its uphill course.

[ForexGump]

The AUD finally took a backseat against the USD and the JPY after climbing for several days. Was this a start of a reversal or was it just taking a pause? Will risk tolerance continue to fuel the AUD’s fire?

Australia’s PPI for the second quarter surprised market participants on the downside by registering a 0.8% drop. The index was only projected to slide by 0.2% after already declining by 0.4% in the first quarter. This drop in the producer prices was said to have been caused by the currency’s rising value.

The Reserve Bank of Australia also released it monetary policy meeting minutes yesterday. The bank said that its interest rate of 3% has been helping the country achieve economic growth. The RBA slashed its target rate by a record of 4.25%. Both the RBA’s substantial monetary easing and the government’s fiscal policy has contributed to the country’s resiliency amid the global recession. the outlook on Australia's economy is getting better. For this reason, many economists believe that the RBA will hike its interest rate within 12 months.

Australia’s CPI for the second quarter will be published today at 1:30 am GMT. Inflation is expected to rise by 0.5% during the period after rising by 0.1% in the first quarter. A rise in CPI would reflect a stronger consumer demand. Such would be positive for Australia’s economy and the AUD at least in the short term.

[ForexGump]

The AUDUSD just drifted in a relatively tight 100 pip range yesterday. This is the second straight day of consolidation after the strong move upwards of the pair. The pair just closed eight pips away at 0.8168 from its opening price at 0.8160.

Australia’s consumer price index for the second quarter came out at 0.5%, right in line with expectations. It seems that consumer demand has picked up, indicated by the increase in average prices of consumer goods and services. This is the third quarter of increase.... Does this mean that the country’s economic health is starting to pick up? Well, I guess we’ll have to see more reports from other sectors of the economy to confirm that the economic recession is truly easing.

Later at 7 am GMT, expect to hear Reserve Bank of Australia Assistant Governor Guy Debelle speech. He’ll be talking in Sydney about the financial markets.

[ForexGump]

For the third straight day, trading of the AUDUSD pair was like 5pm rush hour traffic – tight! The pair did try to test the .8200 mark again but ultimately closed lower at .8156. With the pair in major consolidation – it has been trading between the .8100 and .8200 price area - could we be in for a major breakout soon?

RBA Assistant Governor Guy Debelle delivered a speech yesterday at the Whitlam Institute Forum in Sydney. Debelle did not say anything of significance with regards to monetary policy. Nevertheless, it is important to note that he is one of the RBA’s key advisors on the financial markets so there is always the possibility that he may drop comments about future monetary policy action.

No reports coming out today. Enjoy the weekend and happy surfing mate!