Daily Economic Commentary: Australia

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Daily Economic Round Up of data from Australia!

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The Monday currency boards was relatively quiet as the “Aussie” tested the 0.8100 handle once again. Just like the other instances last week, “Aussie” buying power wasn’t strong enough to break through it.

No economic data released yesterday but today we’ll be see private sector credit for May at 1:30 am GMT. The consensus is that total money lent to consumers and business rose by 0.2%. The Housing Industry Association report on home sales is also tentatively due for release today.

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The AUD/USD started to make strong gains yesterday only to return them after the weak US consumer confidence data sparked a return of risk aversion. This comdoll saw another slide as building approvals reported a massive 12.5% drop, against the forecast of a 3.2% increase. Meanwhile, retail sales were up by 1%, which is slightly better than the expected 0.5% uptick.

Data on commodity prices are due today. Considering the latest commodity rallies, an increase could follow last month’s 23.3% year-on-year decline. This should give the AUD a boost after sliding down against the USD yesterday. The actual figure is due at 2:30am GMT. Soon after, the nation’s trade balance will be reported. The trade deficit is projected to widen a bit from 0.09 billion to 0.1 billion AUD but if the trade balance shifts to a surplus then we may see the AUD recovering some of yesterday’s losses. The report is due at 9:30pm GMT.

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The “Aussie” traded within a tight range of 76 pips yesterday, as it didn’t gain much despite the major US dollar selloff against other currencies. The pair traded within a tight range mostly between .8020 and .8100 through trading yesterday.

The Commodity Prices y/y report showed that commodity prices fell by 4.9% (in terms of AUD) from May to June, after it had fallen by 8.8% in May. The fall was attributed to falling prices of coal and iron ore. Since the beginning of the year, the commodity has index has fallen by 25% and has dropped by 29.3% from a year ago. Still, gold – the commodity the Australian dollar is most closely linked to – has risen 7% from the start of the year and has helped the Australian dollar sustain its strong rise since early this year.

Also released was the Trade Balance report. The report showed that the deficit now stands at 560 million AUD in May, after April’s deficit was revised up from 90 million AUD to 280 million AUD The revision was due to a change in the surplus of goods and services in April, which now shows a deficit. The next report will be released on August 5.

Later today at 11:30 pm GMT, the AIG Services Index will be released. The report is expected to have a reading of 39.9, indicating that the service industry is still in contraction.

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The Land Down Under reported a weaker trade balance as the deficit doubled from 0.28 billion AUD to 0.56 billion AUD. Economists had expected the trade deficit to narrow to 0.10 billion AUD. With exports declining by 5%, the trade balance is now at its yearly low. As a result, the AUD/USD also went, errr, down under.

Since the AUD was rendered more vulnerable to USD strength, the pair slid below the psychologically significant 0.8000 level after the release of the NFP report. Gold prices are also down, which means that the AUD could see more weakness. Data is light today since the US is on a Fourth of July holiday.

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The AUD took a med kit and recovered some of its Thursday damages as it closed on the positive end against the other majors. Trading of the AUD was, however, constrained within a 100-pip range as the Americans popped their booze and lighted their fireworks to celebrate their independence day.

No top tier economic updates were held in Australia last Friday.

Earlier today, data on ANZ job advertisements for the month of June was just released. ANZ job advertisements measure the change in the number of jobs advertised in the major daily newspapers and websites in Australia. The account fell by 6.7% during the period after dropping by 0.2% in May. A drop in the account means that there were lesser job openings for people who were searching for work. The chances of them getting jobs then become smaller. Thank God I have one already. Whew!

The AUD had another blow against the USD, JPY and the CHF following the release.

The AUD may, however, close the day on a positive note given the expected improvement in the ISM non-manufacturing PMI in the US.

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The AUD traded in a U-shaped manner versus the USD in yesterday’s trading session. It initially traded weak during the Asian session but the currency was able to recover all of its losses as the US session went underway.

Australian Industry Group’s construction index for June reported that its construction industry remains to be in contraction mode. It gave a reading of 42.6, a drop from last reporting period’s 46.9. Remember, a figure lower than baseline 50 means more respondents believe that the industry is contracting outnumber those who believe that the industry is expanding.

Expect a volatile AUD today as the Reserve Bank of Australia is set to announce its benchmark interest rate decision at 4:30 am GMT. Economists are expecting things to remain status quo with regards to rate cuts and quantitative easing measures. This may very well hold, especially since the Australia’s economy has been known to be doing relatively better with respect to other nations affected by the global recession. Craig James, an economist from the Commonwealth Bank of Australia went so far to say that “conditions in the Australian economy have improved, with confidence, spending and housing lending markedly stronger, while V-shaped recoveries are emerging in Asia.” We’ll just have to see what the RBA has in store for us in a bit!

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Wild, wild movement on the Australian front, as the AUD was all over the place yesterday. The pair basically remained steady throughout the Asian steady, even as the RBA released its interest rate decision. By the time the European session was underway, the pair was rising before dropping sharply midway through the US session to close much lower than the previous day!

The major news release from Australia yesterday was the RBA interest rate decision. As expected, the RBA kept their rate at 3.00%... and to which traders did not react at all. Along with the rate decision, the RBA gave its assessment of the economy. It appears that the RBA is relatively upbeat on the economy, as there has been some encouraging news lately – for example, the recent GDP report actually showed that the economy avoided a technical recession, while exports, production and capacity utilization are all improving.

By the way, please be sure to check out my recent article, “Bank Down Under: The RBA Rate Decision and the Aftermath”, regarding this issue!

Early this morning, the Westpac Consumer Sentiment report came out. The index, which measures financial confidence and provides an outlook for future consumer spending, showed that consumer confidence rose by 9.3% in the past month, bringing it to the highest level in 19 months. It appears that consumer sentiment has surged due to the confidence that the government’s actions are working to fight the recession. The rise in confidence may also have been a reason why the RBA declined from cutting rates further. They may want to chill on the sidelines first and see the full effects of their past actions.

Another report showed some good news, as it revealed that home loans rose from April to May by 2.2%.

Australian employment data will be released early tomorrow at 1:30 am . Labor conditions still remain one of the weaker points of the Australian economy and may be the key obstacle that needs to be hurdled in order say that the economy is truly on a path to recovery. June labor data is expected to show further job losses of 20,000, with the unemployment rate projected to rise from 5.7% to 5.9%.

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G'day mate...? Well, not quite. The AUD was the worst performer among the commodity currencies yesterday as it shed as much as 100 pips against the USD. Consumer confidence is up and home loans exceeded expectations so why the downslide?

To blame for the AUD weakness was the downgrade in forecasts for commodity currencies on expectations that commodity prices and equity markets will continue to weaken. Oil prices slid down under $62 per barrel yesterday.

Another factor weighing down the AUD is the expected downturn in Australia's labor market. The unemployment rate is projected to reach a six-year high of 5.9%. The actual figure of 5.8%, which was freshly released this morning, wasn't as worse as expected. However, employment change was down by 21.4K, slightly higher than the forecast of 21K in job losses for June. The AUD seems unfazed by this report as it attempts to win back some of its prior losses.

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The AUD may have had a shot of Red Bull yesterday as it recovered some of its losses that it made the other day against the other majors. The AUD gained some boost pretty much the whole day as investors gradually switched back to higher yielding assets.

The US unemployment claims for the week ending July 4 surprising came in below expectations at 565,000. The number was anticipated to register 608,000 from last period’s 617,000. The weak labor market has been putting a drag in the US’ pending economic recovery. The surprise downside in the initial jobless claims figure sparked a little hope in the market. Market participants were encouraged once again as they switched their investments from the safety of USD and JPY back to assets like the AUD.

No economic reports are due today in Australia. The AUD may be once again influenced by the investors’ sentiment in the US market. US’ trade deficit (negative trade balance) is expected to balloon. This may be bearish for the AUD.