Daily Economic Commentary: Australia

The Aussie was able to rally late during yesterday’s game to pare off its losses and even edge the greenback. After hitting a low of 0.9085, the AUDUSD rebounded to close higher at 0.9183 from 0.9155.

The drop in the gold prices earlier during the day weighed heavily on the Aussie. Remember that Australia is one of the biggest producers of gold in the world, giving the Aussie an 80% correlation with the price of gold. Gold fell to $1092.10 per ounce but eventually rallied to close at $1099.50 per ounce. The Aussie rebounded along with it.

No economic reports are due in Australia today. The Aussie, however, could experience some volatility when the US’s February existing home sales are released later at 2:00 pm GMT. The account is expected to print 5.01 million sales in February on top of the 5.05 million during the month prior. A strong figure here could spark some risk taking, benefiting the higher yielding assets like the AUD.

The AUDUSD was directionless in yesterday’s trading session. Although it fell early on during the Asian trading session, the AUDUSD was able to pare its losses once the US trading session rolled along. The pair ended the day at 0.9188, just five pips higher from its open price that day.

Tomorrow, Australia’s CB leading index for January will come out. The CB leading index, which is a composite index of seven economic indicators (some previously released), tries to predict the direction of the economy. A rising reading means that the economic conditions are improving while a falling reading indicates otherwise. If we see another improvement from the 0.6% seen last December, we could see some buying support for the AUDUSD.

The Aussie wiped out yesterday, as a wave of dollar buying caused by the risk aversion tide hit the trading shores. The AUDUSD fell over a hundred pips from its opening price to close at 0.9074.

Tonight, we’ll see if the Aussie bulls will have enough to recuperate their losses from yesterday. First, at 10:15 pm GMT, RBA Governor Glenn Stevens will be delivering a speech at the ACI 2010 49th World Congress in Sydney. It’ll be interesting to see whether he expresses an attitude of confidence in the Australian economy, or if he will continue to show “cautious optimism”. If his statements are more upbeat, it may be a signal that we could see more rate hikes coming from the RBA in the near future.

Later on, at 11:00 pm GMT, the CB leading index will be released. Take note that December’s reading took a turn for the better, as the index rose by 0.6%. Seeing as how the Australian economy has been fairing pretty well so far in 2010, could we expect another rise in the index for January?

The Aussie’s rally was short-lived yesterday since it was unable to hold on to its latest gains. The AUDUSD climbed to a high of 0.9141 before dropping back below the 0.9100 handle during the US session.

The RBA financial stability review, which was released yesterday, revealed that the central bank believes that the recent rise in poorly performing commercial property loans needs close monitoring. Apart from that, the review confirmed that everything is still A-okay with the Australian economy. RBA Governor Glen Stevens echoed this optimistic sentiment in his speech yesterday. He also mentioned that large economies, such as the US and the UK, need to reduce spending while Asian economies could spend more and allow their currencies to appreciate. Hmm, this rhetoric sounds familiar… Well, that’s the ongoing argument for global trade and currency rebalancing!

The only economic report released from Australia was its CB leading index, which printed a 0.2% decline for January, following the 0.6% rise seen in December. This forced the Aussie to cough up some of its profits during the day.

Australia won’t be releasing any economic reports today so watch out for economic reports from other nations, particularly the US, which will release its final GDP and University of Michigan consumer sentiment report. Also keep an eye out for developments concerning the Greek debt situation, which could cause wild swings in risk sentiment!

The Aussie lost again versus the greenback in last Friday’s trading. The AUDUSD fell to and settled at 0.9041 from 0.9074. Can the Aussie get back on its feet and win against the dollar this week? Perhaps.

Earlier today, Australia’s HIA new home sales were issued. The account unexpectedly slipped by 5.2% after logging in a 9.2% win during the previous month. Data on new home sales is used as one of the indicators of a country’s domestic consumption. A slide in this account is usually bearish for the currency. The Aussie, however, still moved higher despite the drop in sales.

On Wednesday, Australia’s retail sales, building approvals, and private sector lending for the month of February will be on deck. Building approvals is seen to have gained by 2.0% after sinking by 7.0% in January. Retail sales are also projected to have expanded again by 0.3% following a 1.2% jump in the month prior while Australia’s private sector lending is estimated to have logged in an increase of 0.4%. Positive results in these accounts could send the Aussie higher.

On Thursday, Australia’s trade balance figure will be published. The country’s trade deficit probably widened to –A$1.37 billion in February from –A$1.18 billion. Australia’s economy is highly dependent on its exports. Therefore, a dip here could reflect negatively on the economy and the Aussie.

Thanks to some unexpected hawkish comments from RBA Governor Glenn Stevens, the Aussie was able to stage a stellar rally in yesterday’s trading session. The AUDUSD found itself at 0.9177 by the end of the US trading session, almost 150 pips higher from its week open price.

In an interview on the TV show Sunshine, Stevens commented that house prices in Australia are starting to rise to unwanted levels. This gave currency traders a chance to speculate that the bank would hike rates again. He even went on to say that keeping interest rates low for long periods and then suddenly hiking them isn’t really helpful to anyone.

For today, we’ve got the building approvals and the retail sales report at 12:30 am GMT.

The building approvals report, which measures the monthly increase (or decrease) of new building approvals issued by the government, is expected to show a rise of 2.1% in February, opposite the huge 7.0% decline seen the month before.

As for the retail sales report, the expectation is a minor increase of 0.3% for February, a fourth of the gain experienced in January. Since consumer spending makes up more than 70% of a country’s GDP, rising retail sales is generally seen as a leading indicator of economic growth. Better-than-expected results tend to cause an immediate rally in the Aussie.

Aussie bulls continued to push the AUDUSD higher yesterday, before giving up some of those gains when the US session rolled around. After hitting as high as 0.9216, the pair finished trading at 0.9182.

Earlier today, retail sales and building approvals data were released, and unfortunately for those Aussie bulls, they came in worse than expected. Retail sales dropped by 1.4% in January, after it was projected to have shown growth of 0.3%. Meanwhile, building approvals fell by 3.3%, opposite the 2.1% expected increase.

These results came a day after some hawkish comments from RBA Governor Glenn Stevens. Will this cause the RBA to think twice before raising rates once again next month?

Later tonight at 11:30 pm GMT, the Melbourne Institute will be releasing its inflation report. Last month, the report showed a mere increase of 0.1% in inflation. If inflation continues to rise, it would just give more reason for the RBA to keep raising interest rates.

An hour later at 12:30 am GMT, trade balance figures are on deck. Estimates are for a deficit of 1.37 billion AUD. If the results come in worse than expected, it may signal that Australian exports are still struggling.

Wipe out! The Aussie took a nasty fall during the early Asian session after weak retail sales and building approvals reports were released from Australia. Still, the AUDUSD fought to keep its head above the 0.9150 level while the AUDJPY grabbed onto the 85.75 handle.

Later on, Australia released another bleak economic report in the form of the AIG manufacturing index. The reading dipped from 53.8 to 50.2 in March, signalling that the expansion in the manufacturing industry slowed down during the month. Although the index remains above the 50.0 mark, the fall was caused by the decrease in orders for consumer goods.

On top of that, Australia’s trade deficit worsened in February as it widened from 1.12 billion AUD to 1.92 billion AUD. Trouble in their export industry, perhaps?

On a more upbeat note, the MI inflation gauge rose from 0.1% to 0.5% in March, putting pressure on the RBA to implement another rate hike soon. Stay on your toes during the next RBA rate decision on April 6!

Up ahead, the commodity prices report is set for release at 5:30 am GMT today. Prices of commodities have long been dropping but at a decreasing pace. In February, commodity prices fell by an annualized 9.7%. A smaller decline could be bullish for the commodity-dependent Australia and could provide a bit of support for the Aussie.

No other economic reports are due from Australia later on but that doesn’t mean the price action would be calm for the rest of the week! Keep an eye out for the release of the US non-farm payrolls report on Friday since this could make some wild waves in the markets!

The Aussie extended its run vis-à-vis the yen last Friday to five. The AUDJPY rose to and closed at 86.91 from 86.41 and also marked a new 6-month high at 87.09. Will the Aussie be able to continue its strong move upward? Maybe.

Commodity prices in Australia rose by 1.4% in March after slipping by 7.0% in February. Remember that commodities take a huge chunk of Australia’s export industry. This rise therefore helped boost Australia’s export income for that same period. The AUD also got some support following the report.

The week will kick off for Australia with the release of the ANZ job advertisements for the month of March on Tuesday. February’s number shows a jump of 19.1% in ads. Job advertisements indicate the availability of work in Australia. For that reason, an increase here would reflect positively on the country’s labor market and the AUD.

However, Tuesday’s focus will be on the RBA’s interest rate decision. The RBA now is expected to raise its interest rate again by 0.25% to 4.25%. The drop in Australia’s February building approvals and retail sales could factor in the bank’s decision not to do so. The AUD would probably lose some support if the RBA does not raise its rate at least as projected.

AIG’s performance of service index will also be issued late on Tuesday. The index logged a score of 48.3 in February. For March, it would be a good news for Australia’s service sector if it tallied a score better than 50.0, indicating an expansion.

On Thursday, Australia’s March employment change and unemployment rate will be due. Firms in Australia are seen to have added another 20,200 jobs in March on top of the 400 that they hired in February. The country’s unemployment rate, though, is still expected to remain the same at 5.3%. Nonetheless, a jump in employment could push the Aussie higher.

Due to the lack of economic news, the AUDUSD found itself dazed and confused yesterday, unable to find direction. The AUDUSD just bounced around a tight 40-pip range and closed the day hardly changed at 0.9212.

No data was released yesterday but earlier today, the Australia and New Zealand Banking group released its report on job advertisements. It showed a rise of 1.8% for the month of March, a significant drop from the 19.1% increase seen in February. The sharp drop in advertisements pushed the AUDUSD down below the previous day’s low.

At 4:30 am GMT today, all ears will be on the Reserve Bank of Australia as they are set to announce their decision on interest rates. They are expected to do a 25 basis point hike. If forecast holds, we could see the bulls take the AUDUSD to this month’s high at the 0.9220 region again. If you want the 411 on the event, head on over to Forex Gump’s blog. He wrote a nice article on the event, detailing possible scenarios and their corresponding effects.

Booyeah! Aussie bulls went on a buying spree yesterday, after the RBA decided to hike rates to 4.25%. After touching as low as 0.9165 zoomed all the way up to close at 0.9283. Talk about an Aussie-some performance!!!

One reason why traders reacted strongly to the Reserve Bank of Australia’s rate decision is that there was some speculation that the bank would actually pause on increasing interest rates this month. Well, so much for that! The RBA took a more positive stance on its economic outlook, pointing to better employment and credit conditions, as well as improvements in the housing market. They even said that the decision was just another step towards bringing interest rates back to normal levels!

Pretty optimistic eh?

No reports are on deck today, so we probably won’t see as strong a move as we saw yesterday. Watch out tomorrow though, as unemployment data is due at 1:30 am GMT. An additional 20, 200 jobs are expected to have been added to the economy. If the release beats consensus, it could lead to another run of AUD buying by Aussie bulls.

After surging above the 0.9250 mark during the Asian session, the AUDUSD traded quietly within a 50-pip range for the rest of the day. The AUDJPY, on the other hand, erased some of its recent gains and fell back below the 87.00 handle.

Australia didn’t release any economic reports yesterday, making it difficult for the Aussie to pick up pace in its latest rally. Risk aversion, spurred by US Fed Chairman Ben Bernanke’s downbeat comments, gave the safe-haven greenback a fighting chance against the higher-yielding Aussie.

Australia is set to release its employment report early today. The report, which is due 1:30 am GMT, could print a 20.1K increase in employment for the month of March. If the actual figure meets the consensus, it would be a much higher than the 0.4K increase in employment seen in February. Although Australia’s unemployment rate is expected to hold steady at 5.3%, a strong employment report could give the Aussie enough energy to bust out of consolidation with the greenback.

The Aussie closed mixed yesterday against the yen and dollar. The AUDJPY closed at 86.63 after touching a low of 85.70 from 86.58. Similarly, the AUDUSD settled at 0.9280 after finding itself at a low of 0.9222 from 0.9278.

Yesterday, Australia issued its employment report. The report showed that firms in Australia added about 19,600 jobs in March which was slightly below the projected 20,100. The previous month’s employment change was also revised down to -4,700 from 400. The country’s jobless rate, on the other hand, remained at 5.3%. In any case, the less-than-stellar March employment change plus the downward revision on the month prior’s number caused the AUD to lose some support.

No economic reports are due today in Australia and in the US. Therefore, the AUD could just trade in a range-bound fashion given the lack of economic flows.

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.

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.

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!

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.

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.

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.

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.