Daily Economic Commentary: Australia

[ForexGump]

Yawn! The AUD/USD was rocked back and forth in a pretty quiet range last week. Will it wake up from its slumber and break out today? There are plenty of economic news that could jumpstart some action in this pair starting Tuesday.

The agenda for Tuesday includes CB leading index, NAB quarterly business confidence figures, and a speech by RBA Governor Glenn Stevens. No forecasts have been provided for the leading index and business confidence reading. The leading index has been up by 0.7% in the previous month while business confidence lingered in the negative territory at -24. If large improvements in these indicators don't cause an upside breakout for the AUD/USD, then there might be something fishy going on...

Another potential breakout scenario could take place if RBA Governor Stevens starts talking about an end to the RBA's monetary easing policies. Otherwise, the AUD/USD might be stuck in the same range as a pullback in equities and commodity prices could dampen risk appetite.

Data on the housing industry is due on Wednesday, when HIA new home sales report will be released. On Thursday, building approvals data is expected and this report should provide a pretty good picture of where the construction industry stands. Lastly, on Friday, MI inflation gauge and private sector credit data are due but these are expected to have minimal impact on price movement.

[ForexGump]

One step higher. The AUD continued its ascend over the USD and JPY in yesterday’s trading. It did so for the most part of the Asia and Euro sessions. It, however, took a breather during the US session as investors decided to bank in their profits.

It was a quiet day in Australia in the land of the boomerangs yesterday. The AUD, though, still managed to move swing higher due to the persistence of risk appetite over the capitals markets particularly in the Asia and Euro trading sessions.

Australia’s Conference Board leading index in May was just released earlier today. The index came in well below expectations at -0.1% after rising by 0.3% in April. A negative reading points to a sour outlook in Australia’s economy. The AUD fell following the update.

The NAB business confidence survey for the second quarter will also be published today at 1:30 am GMT. The index came in at -24 during the first quarter of the year. The index will most likely register a higher reading because of the recent rallies that we saw in the markets.

RBA Governor Glenn Stevens is also due to deliver a speech titled "Challenges for Economic Policy" at the Anika Foundation Luncheon, in Sydney. Market participants will look into his speech for clues regarding future monetary policy.

[ForexGump]

Reserve Bank of Australia Governor Glenn Stevens finally gave AUD bulls to take the pair to new yearly highs yesterday. His extremely hawkish comments took the AUD all the way to 0.8338 versus the USD before retracing some of its gains during the US session.

Apparently, Stevens believes that the nation’s economic downturn isn’t as bad as initially thought. Stevens even said that the current recession isn’t “one of the most serious” ones. Economists are saying that the RBA might be the one of the first central banks to raise interest rates. They say that the bank might start increasing benchmark interest rates as early as December this year.

Today, we’ve got the Housing Industry Association’s report on new home sales tentatively for release. Housing data usually has a significant impact on the foreign exchange market because traders and economists alike use it as a leading indicator of future economic activity. They believe that an improvement in home sales would also stimulate activity, in say, the furniture sales and mortgages.

[ForexGump]

After breaking out of a recent channel and registering a new yearly high, the Aussie dollar has wiped out the past couple of days on increased risk aversion. After China’s stock market crashed by 5% yesterday, the AUDUSD followed suit and dropped to .8165.

The Chinese stock market crashed on speculation that the Chinese central bank would order banks to tighten liquidity and set aside more funds for reserves. China is one of Australia’s key trading partners, so the AUD does get affected by news coming out from China. The next couple of days could provide some direction for the AUD.

Over the past 24 hours, some housing data has been available. The Housing Industry Association revealed that new home sales rose by 0.5% in the month of June, after it had experienced a 5.7% drop in May. At the same time, building approvals rose by 9.3%. The rise was mostly attributed to first home buyers, who have benefited from aid given by the Australian government. This news came out a day after RBA Governor Glenn Stevens warned against a housing bubble that could form due to low interest rates and the boost in first home owner’s grants. If the RBA is avoiding a housing bubble, they may raise interest rates and cut back on grants. This in turn, could have a drastic effect on new home sales. Just something to keep note of for the rest of the year...

No high impact reports are scheduled for the rest of the week, with medium impact Private Sector Credit m/m report scheduled for release tomorrow at 1:30 am GMT. This report measures the change of credit issued to consumers and business in the past month. Aside from that, be on the look out for any news coming out from China, as it could spark another run to risk aversion.

[ForexGump]

Aussie for the rebound! The AUD/USD regained some ground yesterday after being pummeled down by risk aversion a couple of days ago. The reason behind the Aussie rally? The surge in building approvals.

Building approvals in the Land Down Under made a 9.3% leap in June after being down by 11% in May. This marked the largest increase in four years as government grants and low borrowing costs boosted demand for buyers. Building approvals may have been down by 14.3% from a year earlier but the monthly rise was taken as positive news, which carried the AUD/USD above the 0.8200 mark.

The last set of economic news from Australia this week covers Melbourne Institute's inflation gauge and private sector credit data. The inflation gauge, which is due at 12:30 am GMT, provides a monthly look at consumer inflation. Last month's reading was a 0.4% increase. Private sector credit is expected to be up by 0.1% in June. The actual figure is due at 1:30 am GMT.

[ForexGump]

The AUD inched higher over the USD and JPY in last Friday’s trading. It got its boost from the improvements in the US and Chinese’s fundamentals.

Australia’s bank lending in June rose in line with expectations by 0.1% after falling by 0.1% during the month prior. The recent rebound in consumer confidence is said to be the one that prompted the demand for loans particularly from the first-time home buyers. The AUD rose marginally following the release.

US’s advance GDP for the second quarter came in better-than-expected at -1.0% from -6.4%. It was only projected to come in at -1.4%. This urged market participants to take in more risk in the US capitals markets as such result reflects very well on the US’s economy. Higher yielding currencies like the AUD benefited. Moreover, the AUD further increased with the advance, albeit marginal, in China’s manufacturing PMI in July from 53.2 to 53.3. China is one of the biggest export markets of Australia. A healthy Chinese manufacturing sector would definitely assist the Australian exports.

Today (1:30 am GMT), data on the ANZ job advertisements for the month of July will be released. The index fell by -6.7% in June. An increase in the number means more job openings. Hence, any gain would generally be bullish for the AUD.

[ForexGump]

Zoom zoom went the AUD yesterday as it made another convincing yearly high for the second trading session in a row! It seems that risk appetite is finally in full bloom, much to the benefit of the high-yielding AUD. Today, the Reserve Bank of Australia will be announcing its interest rate decision so expect a volatile AUD.

Currently, the benchmark interest rate stands at 3%... Pretty high considering how low rates are on the western side of the world! This gives the AUD a slight advantage in terms of yield which attracts investors to hold the currency in order for them to get the best bang for their buck. In any case, economists aren’t expecting any changes in the bank’s outlook, much less their interest rates as signs of the recession easing are popping up in many sectors of the global economy.

The house price index and the retail sales report just released show how strongly risk tolerance is affecting the foreign exchange market. The house price index printed a 4.2% rise, propelling the AUD around 40 pips upwards... another yearly high! The retail sales report, on the other hand, which showed a 1.6% drop was ignored.

Australia has been one of the more optimistic nations in the course of this global recession and experts and analysts are saying they might be one of the first countries that would raise interest rates. Because of this, it would be prudent to keep an ear out of any hints of interest rate hikes from the RBA as this would really push the AUD higher... Given how risk appetite is affecting the markets right now, prospects of a policy shift could extend the AUD’s gains further.

[ForexGump]

Make it three in a row! Yesterday marked the third consecutive day that the AUD set a new yearly high, as the AUDUSD hit .8470 early in the Asian trading session before closing the day at .8442. With risk tolerance in full gear, can the AUD extend its run for a fourth consecutive day?

The Reserve Bank of Australia kept their interest rate at 3.00% yesterday, as they believe that the recent rate cuts have been instrumental in keeping the economy afloat (and why wouldn’t they want to take credit for their “decisions”?). RBA Governor Glenn Stevens said that the Australian economy is doing much better than forecasted a few months back, as exports and consumer spending have been resilient. He said that with signs of rising consumer and business sentiment, the Australian economy has most likely avoided a severe contraction.

Early this morning, the Australian Trade Balance report was released. As of this time, no data was available. It is expected that the report will show a deficit of AUD $790 million for the month of June.

Tomorrow, we could see some make or break moves with unemployment data coming out at 1:30 am GMT. It is expected that 17,800 jobs were lost in July, which would bring the unemployment rate to 6.0%. Rising unemployment has been one of the major issues holding back the RBA from hiking their rates, so take note of this development – if it comes out much better than forecasted, could we be in line for a rate hike next month?

That being said, it seems that with all the positive news, it is only a matter of time before the RBA is the first central bank to hike its interest rates. With the AUD already having the highest interest rates amongst major currencies, I think we could see a nice run by the AUD should the RBA decide to hike rates soon. Traders and investors have been eating up higher yielding assets as of late – a rate hike would certainly make the AUD more scrumptious that it already is.

[ForexGump]

Consolidation is still the theme for the Aussie's price movement yesterday. After reporting a surprise improvement in its trade balance, Australia is now gearing up for employment data due early today.

Australia's trade deficit, which was expected to widen from 740 million AUD to 790 million AUD, narrowed to 441 million AUD. This unexpected improvement in the nation's trade gap was spurred by the recovery in China, which boosts demand for Australia's natural resources. China, which is a major trade partner of Australia, posted a 7.9% year-on-year growth in the second quarter of this year. The substantial rise in Australia's exports was led by a 17% increase in gold exports. Imports, on the other hand, stagnated. Imports of consumer goods rose by merely 4%.

Up ahead, employment data is expected to be a bit of a downer for the Land Down Under. A total of 18.8K jobs are expected to be shed this month, bringing the unemployment rate from 5.8% to 6.0%. If the forecasts are accurate, then the employment reports could put some downward pressure on the AUD. The actual data is due at 1:30 am GMT.

[ForexGump]

The AUD lost its grip against the USD and the JPY after it recently posted new yearly highs. The resistance at AUD’s current levels (80.00 against the JPY and 0.8400 versus the USD) appears to be somewhat solid. The AUD/JPY and AUD/USD have attempted to break the said levels but were not able to do so. The pairs have been consolidating around the new highs for about 4 days now.

Australia’s unemployment rate for the month of July, which was expected to rise to 6.0%, has remained the same at 5.8%. The unexpected 32,200 in additional hires during the period has put a cap on Australia’s unemployment rate. The positive figure came in as a surprise since just last month Australian employers cut about 23,100 jobs. 18,800 were initially expected to lose their work. In July, the number of full-time jobs, however, dropped 16,000 but the number of part-time jobs increased 48,200. In any case, the increase in employment change during the period can be seen as another sign of the economy’s resilience.

The AUD rose for awhile following the report. The data supposedly positive implications were not able to propel the price higher. The AUD/USD and AUD/JPY pairs just continued ranging afterward.

The Reserve Bank of Australia has just released its monetary policy statement earlier today. The RBA said that it has revised its growth outlook as it now sees its GDP to rise by 0.5% in 2009 before advancing to 1.0% in the year to June 2010. The recent upbeat data suggests that the economy is performing better than expected. According to the RBA, the government’s fiscal stimulus plus the central bank’s monetary easing combined with china’s growth have helped the economy.

Despite the encouraging statements and upbeat outlook by the RBA, the AUD fell against the USD and JPY following the release. This suggests that the AUD may be overpriced at current levels.