Daily Economic Commentary: Australia

[ForexGump]

Despite dismal results from the non-farm payrolls, the AUD/USD pair kept its head above 0.8600 last Friday. Still, the AUD generally fell against the USD last week though as it ended at 0.8636, slightly lower than its week open at 0.8695.

For this week, the focus will be on the Reserve Bank of Australia's interest rate decision tomorrow at 5:30 am GMT and the unemployment report on Thursday at 12:30 am GMT.

The Reserve Bank of Australia is expected to keep rates unchanged at 3%. On the one hand, many experts predict that Australia would be one of the country's that would hike rates as Governor Stevens indicated in the previous rate decision that rates would eventually return to normal levels. Some even speculate that Australia could raise rates as early as December! On the other hand, we had financial leaders agreeing that it was way too early to think about unwind the ultra-accommodative monetary policies in the most recent G20 summit. In any case, tomorrow's statement could provide clarity on the issue.

For the unemployment report, economists predict that the jobless rate edged to 6% in September from 5.8% in August. However, it is important to note that the unemployment report has consecutively printed better-than-expected figures three consecutive months already. If the report comes out with another positive surprise, we might see another run in risk, which could push the AUD higher against most major currencies again.

[ForexGump]

The Aussie shot up early in the Asian session, then stayed pretty much ranged bound for most of the day before shooting up once again during the latter hours of the US session. The pair opened at .8682 and ended the day at 0.8771.

Before the RBA statement, trade balance data was released at 12:30 am GMT. The data came in worse than expected, as a deficit of 1.56 billion AUD was recorded for the month of August. Even though this was as improvement from the previous month's figures, the market didn't react too much.

The tight trading may be attributed to no economic news being released yesterday. Well, things should be a lot different today... The Reserve Bank of Australia will be releasing their interest rate decision today at 3:30 am GMT! As I said yesterday, the RBA isn't expected to change rates, even though they are the favorites to raise rates first. The question is when exactly they plan to. Let's see what the RBA has to say in their statement later today.

Looking ahead, we've got some housing data coming out tomorrow at 12:30 am GMT. Home loans are projected to have fallen by 0.4% from July to August.

[ForexGump]

Hats off to Australia! Out of all the central banks, theirs was the first to raise rates ever since the start of the global economic crisis. In their monetary policy statement yesterday, RBA Governor Stevens announced a 25 basis point hike in Australia's overnight rate. The AUDUSD's response? A 160-pip leap to reach its 14-month high of 0.8920!

At first, it seemed like the AUD was not having such a good day when Australia's trade balance failed to meet expectations. Their trade deficit narrowed from 1.78 billion AUD to 1.52 billion AUD in August but the consensus was that it would contract to 0.89 billion AUD. The components of the trade balance show that the decline in imports of oil and consumer goods outweighed the drop in exports. Some analysts found this decline in exports a bit alarming, especially since exports to China fell by 17% in August - its biggest drop in three months.

A few hours later, the Aussie was able to shake off the negative vibes brought about by the weak trade balance data. The RBA shocked the markets by raising their overnight rate as more and more signs of a recovery were seen in the Australian economy. Now, it's not that surprising that Australia was the first major economy to hike rates. After all, it was able to dodge a technical recession early this year and was able to sustain positive economic growth for a couple of quarters. What came as a shock was the fact that the RBA implemented a rate hike a month earlier than expected. They must be hella confident in their economy! According to Stevens, the risk of serious economic contraction in Australia has already passed. Could we expect another interest rate hike before the end of the year?

USD weakness also helped boost the AUDUSD, as well as gold prices, higher yesterday. Gold surged to a record high of $1045, resulting to a strong performance by the AUD and the rest of its comdoll buddies (CAD and NZD).

Today, Australia releases data on home loans at 12:30 am GMT. Home loans are expected to post another decline for August after dropping down by 2.0% in July. The pace of decline is projected to be slightly moderated this time, with the consensus at -0.6%. If the actual figure comes in better than expected, then the AUD's rally could gain more momentum.

[ForexGump]

The Aussie took a pause against the dollar and registered a "doji" candle in yesterday's price action. The pair opened and closed at 0.8897 after marking a new yearly high at 0.8952. Time for a reversal? Not quite yet.

Australia's home loans in September fell in line with expectations by 0.6% to 62,718 from July. The 2.0% drop in the number of new loans granted for owner occupied homes during the month prior was, however, negatively revised to 2.2%. With the RBA recently hiking its interest rate to 3.25% from 3.00% and the government's decision reduce the grants given to first-time home buyers as A$21,000 starting this month, home-loans approvals could slide further in the coming months. The hike in the RBA's interest rate would make borrowing costs more expensive to consumers down the line.

Meanwhile, the AUD surged by more than a hundred pips earlier today due to the encouraging employment report in Australia. Private firms hired about 40,600 new workers in September after letting go 26,100 in August, bringing down the unemployment rate to 5.7% from 5.8%. 9,700 workers were initially projected to have been laid off. These positive figures add to some speculations that the RBA could follow-up on its interest rate hike this coming November. The Aussie jumped to a fresh yearly high versus the greenback following the report.

No other economic reports are due in Australia today. The AUD could continue its ascent should positive sentiment remains in the markets.

[ForexGump]

The Aussie continued to flex its muscles against the Greenback yesterday as the country’s employment report surprised to the upside. The AUD/USD made it all the way to 0.9092 before retracing some of its gains and ending the US session at 0.9056.

Australia’s employment report showed that joblessness decreased by 0.1%, opposite the increase 0.2% expected. A total of 40,600 net jobs were added in September, indicating recovery is indeed underway for Australia.

Given how the RBA actually hiked the country’s benchmark interest rate by 25 basis points to 3.25% and how well its labor market is doing, it seems that the Aussie has nowhere to go but up. As long as no disappointing data comes out, we might see the AUD/USD pair continue to make new yearly highs. However, the pair looks very heavy at its current levels, especially as we head into the weekend... Will we see the pair retrace some of its gains as currency trades close shop for the week?

[ForexGump]

Quiet Friday in Aussie trading, as the AUDUSD pair stayed within tight range all day long. The pair traded within a range of just 42 pips, closing slightly lower at 0.9039. Given that gold has just set a new all time high, will the AUD continue it winning ways this week?

This week, we’ve got some confidence indexes coming out, starting tomorrow at 1:30 pm GMT, when the NAB business confidence index will be released. The survey – which asks business managers to rate current business conditions –a reading of 18 in September’s release. Take note that scores above 0 indicate improving market conditions. What will this month’s edition bring us?

Later in the week, the Westpac consumer sentiment and NAB quarterly business confidence reports are also due. If all these confidence reports show improvements in sentiment, could this push the AUD even higher?

Also, RBA Governor Glenn Stevens will be speaking at a forum on Thursday. As the head of the central bank, traders normally listen to his every word like he’s Elvis Presley. He’ll be speaking at 12:30 am GMT, so watch out for any surprises around that time.

Given how the AUD has been rallying as of late, traders could be waiting to cover their positions and take some profits, especially with earnings reports coming in. I’d be on the lookout for this, as poor results could cause risk aversion to rampant once again. Also, I’d keep an eye out on gold trading – if the commodity keeps rising, it could keep carrying the AUD to new heights.

[ForexGump]

At first, I thought the AUDUSD rally was already over as it edged down towards the 0.9000 mark during the Asian and European sessions. As it turns out, the lack of economic data from Australia was not enough to make the AUDUSD back down. After hitting an intraday low of 0.8984, the pair flew up by almost 100 pips!

The RBA announced that they would be expanding their credit relief program in order to improve liquidity in the credit markets. An additional 8 million AUD was pledged as support for their residential mortgage backed securities program. This was a bit of a downer for the AUD since the expansion seems to run contrary with RBA's recent rate hike. I thought things already got better so what's the additional easing for?

At the end of the day, the AUDUSD seemed poised to make another new yearly high with yesterday's commodity price rallies boosting the comdolls higher. Oil prices rose by nearly 2% while the price of gold hit another new yearly high.

NAB business confidence figures are due 12:30 am GMT today. Australia has just had a stellar performance - with an RBA rate hike, rising employment, and an AUD rally to boot - and it wouldn't surprise me if businessmen show a highly bullish sentiment for their economy. The business confidence index has been racing upwards ever since it landed in positive territory in June. Last August, it stepped up from 10 to 18... How high can it go this September?

[ForexGump]

The AUDUSD pair closed lower at 0.9054 after tagging a new high at 0.9127. The pair may be poising itself for its next big move as it just traded quietly between the 0.9100 and 0.9050 range yesterday. The Aussie could bust out of the 0.9100 resistance if risk appetite surfaces again today.

The NAB business confidence index fell to 14 from 18 in September due probably to the slide in the manufacturing, wholesale and retail sectors. The Aussie lost some support following the release. On a separate note, Australia’s Westpac consumer sentiment in October rose again by 1.7% to 121.4 in October from 119.3. It’s not really surprising to see an increase in sentiment this month given the RBA’s recent interest rate hike. This time, the Aussie got some short term lift due to the encouraging number.

Today (11:30 pm GMT), RBA Governor Glenn Stevens will deliver a speech at the John Curtin Institute of Public Policy and Finsia's Public Policy Breakfast Forum, in Perth. But the main catalyst, however, will be the earnings reports of several high profile firms (GE, BOA, Google, Goldman Sachs, etc.) in the US. Strong earnings could boost demand for higher yielding assets which could very well benefit the AUD.

[ForexGump]

It seems that there’s no stopping the Aussie from making new highs against the dollar. Rising gold prices, relatively high interest rates, risk appetite, better-than-expected earnings... All these factors are just reinforcing that the Aussie is indeed the go-to currency during this period of economic recovery.

In fact, Reserve Bank of Australia’s Governor Glenn Stevens speech just hours ago gave the chance for the currency to stage a stellar rally once again. In his talk he said that given how fast they were in cutting them when the recession began, the bank must be quick as well in raising rates now that economic recovery is underway.

The RBA is the first G20 central bank to raise rates and there has been some speculation that there would be more hikes come November and December. If the RBA maintains this kind of attitude towards their monetary policy, I suspect the Aussie would continue to make new highs against the dollar.

No economic data due for release today but the quarterly NAB business survey could be released as early as tomorrow. It has been in negative territory for six consecutive quarters now but the underlying trend is upwards – meaning each quarter prints a better figure than the previous one. I suspect that we might see a positive figure on this next release.

[ForexGump]

Once again, the go-to-currency delivers! For the 4th straight day, the AUDUSD set a new yearly high, touching off at 0.9229 , and ending the day at 0.9201.

Nothing due today, but given how strong the AUD has been, I don’t think it will need any economic reports to bring it higher. As long as sentiment remains high, this bodes well for the Aussie. Still, with it being a Friday and with some earnings reports coming out from the US, I’m still wary about potential profit taking that may take place as traders close their books for the weekend.