Daily Economic Commentary: Australia

[PipDiddy]

The combination of the RBA's rate hikes, improving risk appetite, and rising optimism on a possible Greece bailout plan has taken the AUDUSD week-on-week. The AUDUSD found itself opening the week higher today to post new year-to-date high at 0.9389.

Earlier today, Australia's ugly results on its home loans report pushed the AUDUSD a couple of notches lower. It showed that home loans declined by 1.8%, much higher than the 1.0% drop initially predicted. Hmm, another chance for the bulls to buy the AUDUSD at cheaper levels?

Looking ahead the week, no real hard-hitting data coming out of Australia's economic calendar but there are some leading economic indicators coming out that could give the pair some volatility. Watch out for the NAB business conditions and confidence surveys tomorrow, the Westpac consumer confidence index on Wednesday and the consumer inflation expectations on Thursday.

[PipDiddy]

Rough and choppy waters caused the AUDUSD to sink yesterday. The pair closed the day at 0.9283, a dip of about 100 pips from its opening price, completely erasing the gap it had made over the weekend.

A major reason why the Aussie dropped is because of comments made by some RBA officials, who said that interest rates were returning normal levels. This suggests that the RBA feels that they’ve hiked interest rates and that we may not be seeing any rate hikes in next couple of months. It appears that the RBA wants to prevent asset bubbles (for example, rising housing prices) from forming, while still giving the economy enough juice to keep on growing.

Oooh, I just rhymed! Forming, growing.. okay nevermind… Moving on…

Just a few minutes ago, the NAB business confidence index was released, posting a score of 16. This was slightly off from last month's release, which had a reading of 19. This means that while businessmen are still optimistic over the state of the economy, they aren't as optimistic as they once were.

Tomorrow at 12:30 am, the latest Westpac consumer sentiment report will be available. The report measures consumer confidence on current and future economic conditions. Last month’s release showed a measly 0.2% increase in the index.

Given the recent run of rate hikes, will this make consumers more confident in the economic recovery? Or will it dampen their outlook on consumer spending? After all, higher rates do lead to less consumer spending activity and we did just see housing loans dip.

[PipDiddy]

Business confidence may have weakened in Australia but the Aussie was still able to strengthen against the greenback and the yen. The AUDUSD bounced from a low of 0.9225 while the AUDJPY landed safely above the 86.00 handle.

An index of business confidence, reported by the National Australia Bank Limited, slid from 19 to 16 in March. Despite the slight dip, the index remained close to its highest level in almost a decade. Components of the index showed that business investment, consumption, and export growth all posted huge gains for the month. Aside from that, the bank raised its 2010 GDP forecast from 3% to 3.5%. They also predicted that the Australian economy would expand by 4.25% next year. The Aussie must have been pretty stoked after hearing this!

On a less upbeat note, the freshly released Westpac consumer sentiment report showed that confidence fell from 117.3 in March to 116.1 in April. Westpac chief economist Bill Evans was quick to point out that the impact of the rate hikes probably hasn't been felt by consumers yet. The survey showed that the 12-month outlook for family finances recorded its sharpest fall in two years. On the other hand, the economic outlook for the next 12 months posted a considerable improvement. This shows that consumers are confident that the Australian economy would stay strong but are concerned about their personal finances.

No other economic reports are due from Australia today but that doesn't mean that the Aussie is in for an uneventful day. Bear in mind that the US is set to release their CPI and retail sales reports later today and these could have a huge impact on risk sentiment. Better than expected figures could help the Aussie catch a wave of risk appetite and ride it until its recent highs!

[PipDiddy]

The Aussie continued its upward move with a nice win over the dollar and yen yesterday. The AUDUSD, after dipping to a low of 0.9223 the other day, rose to and closed at 0.9348 from 0.9273. Similarly, the AUDJPY finished the session at 87.12 from 86.39.

Stellar corporate earnings from a couple of big US firms, strong US retail sales, and a relatively stable inflation figure spurred risk taking among investors during the US session. This benefited the higher yielding assets like the Aussie.

Inflation expectation in Australia for the month of April will be due shortly at 1:00 am GMT. Inflation expectation for March was at 3.2%. It’s possible for us to see a lower inflation expectation figure for this month because of the recent unexpected slide in retail sales. A lower figure could be bearish for the AUD.

China is also set to report their year-over-year CPI figure in March and its first quarter GDP growth at 2:00 am GMT today. The Chinese economy is seen to have grown by 11.8% during the first quarter while having a CPI of 2.6% in March. Remember that Australia is one of China’s biggest suppliers of raw materials. A stable CPI figure plus a strong GDP growth, therefore, could also reflect positively on Australia and the Aussie.

[PipDiddy]

Despite the case of risk aversion in the markets, the Aussie was able to hold its ground against the greenback in yesterday's trading session. The AUDUSD closed out the US trading session hardly changed at 0.9334. It looks like the Aussie's relatively high interest rate will continue to prop it up for the days and weeks to come.

No red flags on Australia's economic calendar today so expect the Aussie to be primarily influenced by data coming out of the US, particularly the building permits report and the preliminary University of Michigan's consumer sentiment survey.

[PipDiddy]

Shazam! The Aussie got hit with some magic, as risk aversion brought higher yielding currencies to their knees. This was best seen in the AUDJPY, which dropped by over 150 pips from its opening price!

The major news that came out on Friday were accusations by the big boys over at the SEC that hotshot Goldman Sachs in tricking their customers. Naturally, with the company being a “leader” in the banking industry, this spooked fears across the markets. Despite the strong showing of the Australian economy as of late, any news regarding another potential setback in the global recovery will still drag down financial confidence. I'll keep you posted throughout the week on developments of this issue.

Nothing major coming out tonight, but do watch out for US Fed Chairman Ben Bernanke as he will be delivering a speech at 1:00 pm GMT. Chances are he may talk about the Goldman Sachs issue, so watch out for some big moves during the US session.

Tomorrow at 1:30 am GMT, the minutes of the latest Reserve Bank of Australia MPC meeting are due. The minutes will reveal what RBA members discussed in the most recent meeting and could provide insight as to whether the RBA will continue to hike interest rates in the coming months.

Remember, the RBA has been the only major central bank that has been raising interest rates. If this keeps up, it could provide more support for the AUD to keep pushing higher, as higher interest rates make Australian securities more attractive, which raises demand for the AUD.

[PipDiddy]

After gapping lower over the weekend, the Aussie continued to struggle against the greenback and the yen in yesterday's trading. The absence of risk appetite, along with China's decision to implement tightening policies, dragged the Aussie down.

Australia didn't release any economic reports yesterday as news from China, its main trade partner, became the key driver of the Aussie's movement. China announced that it would be adopting credit restrictions in order to control the rapid appreciation of property prices. This suggests that China is already taking some steps to put a lid on its excessively strong economic expansion. These tightening measures could then have a negative impact on its export partners like Australia.

The RBA is set to release the minutes of their latest monetary policy meeting at 1:30 am GMT today. These minutes should explain the basis for the RBA's fifth rate hike, which took the markets by surprise. Would they pause from their rate hikes next time or should we expect a sixth hike? Comments from RBA officials could also provide some hints on that.

[PipDiddy]

After two days of disappointment, the Aussie finally came through with a huge win over the greenback and the yen yesterday. The AUDUSD jumped to 0.9315 from 0.9229. Similarly, the AUDJPY surged to 86.77 from 85.27.

The Reserve Bank of Australia (RBA) published the minutes of its recent monetary policy decision that was made last April 6. The bank was foreseeing a stronger growth particularly in the country's exports which could lead to higher inflation in the future. It also omitted the word "gradual" when it discussed about its next rate hikes. Its upbeat outlook on Australia’s economy caused the Aussie to rise back from the dead. To have an inside look on the bank’s minutes, kindly see the article that my colleague, Forex Gump, wrote here.

The rise in gold prices also fuelled the Aussie’s drive higher. Gold contracts for June rose by 0.3% to $1139.20 per ounce. Remember that Australia is one of the major suppliers of gold in the world. So usually an increase in gold prices also lead to a jump in the Aussie. To learn more about the relationship between the Aussie and gold, kindly click here.

Earlier today, Australia Westpac leading index for the month of February was issued. February’s index showed an advance of 0.5% on top of the month prior’s 0.4% gain. The result, though, was not enough to boost the Aussie further.

No other major economic reports are due today in Australia. Given the lack of economic flows from the country, the Aussie could range or even dip for a while today as traders start to pocket their profits from yesterday.

[PipDiddy]

The Aussie was unable to hold on to its gains over the greenback yesterday. The AUDUSD ended the US trading session at 0.9284, 30 pips lower from its Asian session opening price. Hmm, another opportunity for the bulls to buy the Aussie at a cheaper price?

No data coming out for today from Australia, but please do watch out for the large amount of reports coming out of the US. Among the things to keep an eye out for are the following: the producer price index, the initial jobless claims and the existing home sales. Better-than-expected results on the reports could trigger risk appetite, and push the Aussie higher once more.

[PipDiddy]

Up and down day for the Aussie, as the AUDUSD pair basically stayed within its average daily range of about 80 pips. The pair ended the day at 0.9288, but appears to be heading lower to start today... Is this a sign of things to come?

We could be in for an interesting battle today, as it appears that risk aversion is slowly creeping back in. Greece debt issues caused the euro to stumbled yesterday, which probably helped the dollar post gains across the board on increased risk aversion. Naturally, this didn't bode well for the Australian dollar, as investors looked to unload on higher yielding assets.

However, RBA Governor Glenn Stevens will be delivering a speech called “Economic Conditions” at Toowomba later today at 2:50 am GMT. Seeing as how the RBA delivered some pretty hawkish statements earlier this week, could we Stevens drop more hints of optimism today?

What will win out – optimism towards the Australian economy? Or risk aversion caused by events halfway across the world? Or will we see more consolidation like what we've been seeing the past couple of days?