Daily Economic Commentary: Australia

[ForexGump]

The Aussie ended the week on a sour note as risk aversion rose on concerns that global recovery wouldn’t be sustainable. The AUD/USD pair closed Friday just a few pips above the 0.9000 handle, almost 200 pips from its week open price.

Could it be that investors are starting to realize that this recovery we are experiencing is merely the product of the massive stimulus measures? Would the global economy, in the next couple of months, start to deteriorate once these support programs end? Nobody knows for certain but what we do know is that it has been risk sentiment that has been driving the markets since early this year. If this kind of pessimistic sentiment continues, expect to see the Aussie weaken this week.

This week will be big for Australia as the RBA will be announcing its decision on the country’s benchmark interest rates on Tuesday, 3:30 am GMT. The RBA has been the first among the G20 central banks to raise rates as they believe that they should be open to hiking rates as fast as they cut them when the recession began. The expectation for tomorrow is a 25 basis point hike, from 3.25% to 3.50%. Expect to see some Aussie buying if forecast holds.

Also watch out for the country’s trade balance for September on Wednesday, 12:00 am GMT. Australia’s trade balance, which measures the net difference in value between imported and exported goods in a given period, tends to create a significant market impact as the country’s trade industry makes a good chunk of its GDP. The consensus is a deficit balance of A$2.16 billion, significantly lower from last reporting period’s A$1.52 billion deficit.

[PipDiddy]

The Aussie dollar was able to stay afloat despite the rocky waves in Monday’s trading session. The AUDUSD pair finished the day higher at 0.9035, up more than 70 pips from its opening.

The Aussie got off to a nice start as a report printed that housing prices rose by 4.2% in the 2nd quarter. This marked the second straight quarter that prices rose, and was also better than expectations of a 3.0% increase. This will be interesting to monitor in coming months, especially with the Reserve Bank of Australia raising rates recently. Will rate hikes eventually lead to a leveling out of home prices? Take note, RBA Governor Glenn Stevens has mentioned that rising prices was one reason why the RBA is raising rates – they want to avoid a housing bubble similar to the one that eventually led to this recession.

Speaking of the RBA and interest rates, the RBA will be releasing its interest rate decision later today at 3:30 am GMT. Some analysts expect that the RBA will hike the rate another 0.25%, bringing it up to 3.5%. I suspect that if we see another rate increase, we could see the Aussie dollar rise up once again...

We could see more big moves tomorrow, as building approvals and retail sales are due at 12:30 am GMT. Approvals are forecasted to have risen by 2.4% during the month of September, while retail sales is expected to have grown by 0.5% during the same period. If these figures do come in and show positive figures, this could set the tone for more AUD buying.

[PipDiddy]

Risk aversion was on such a rampage yesterday that even a 25 basis point interest rate hike from the RBA was not enough to push the AUDUSD higher. Also, comments from RBA officials suggesting that the central bank would pause from hiking rates in December weighed down the AUD.

The RBA confirmed that economic growth in Australia has been stronger than expected, noting that there have been impressive improvements in various sectors of the economy. They also highlighted that the growth in China, their major trading partner, has contributed much to Australia's economic expansion. However, they mentioned that the appreciation of the AUD is likely to constrain output and subdue inflation. According to them, inflation has been steadily declining in the past year and should continue to moderate. Still, they expect inflation to stay within target until next year.

But another rate hike next month may not be in the cards... Aside from the fact that the RBA has never implemented three rate hikes in a row, speculations that the central bank will not raise rates in December brewed from this part of the statement: "With the risk of serious economic contraction in Australia now having passed, the Board’s view is that it is prudent to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker." It went on to say that the rate hikes in October and November are sufficient to increase the sustainability of economic growth.

Moving on... Australia has a couple of high-impact reports on today's docket. These are data on building approvals and retail sales, both of which are due 12:30 am GMT. Building approvals are expected to surge by 2.4% in September after dipping by 0.1% in the previous month. Meanwhile, retail sales could print a 0.5% uptick in September, a slightly moderated increase compared August's 0.9% rise.

Don't forget that today is the date of the FOMC statement release. This report, which poses a huge event risk for the entire currency market, is due 7:15 pm GMT. Although the Fed is expected to keep rates at their current level, comments from Fed officials could have a big impact on risk sentiment. Price movements are likely to be extra volatile later on so be careful out there!

[PipDiddy]

Met by a significant technical support at 0.9000, the Aussie rallied past the greenback to close at 0.9099. Buying interests could send the pair higher especially now that its uptrend is well intact.

While Australia’s annualized building approvals printed a 2.7% gain in September, participants focused more on the 0.2% contraction in the monthly retail sales for the same month. Worries were further compounded by the negative revisions in the previous figures of the two accounts. Building approvals in August were adjusted to -0.9% while retails sales were also downgraded to 0.7% from 0.9%. Remember that the Australian government handed out A$20 billion in cash to consumers. The recent results indicate that the effects of such on consumption are already fading. The recent drop in the figures could keep the RBA from raising its interest rate again this December.

The Aussie fell following the reports. Traders, however, took this as an opportunity to buy up the AUD in anticipation of the Fed’s decision to keep its rate unchanged at 0.25% for an expected period of time. This, of course, is bearish for the USD. Later in the day, the Fed indeed kept its rate as is.

Earlier today, Australia’s trade balance was released. The issue showed that the country’s trade deficit has widened to –A$1.85 billion in September from –A$1.65 billion. The latest tally is, however, better than the original –A$2.13 billion forecast. The surged in the country’s exports pared down the rise in imports. Such can be attributed to China’s strong demand for iron ore and coal.

The better-than-expected results usually translate positively on the AUD. This is not the case today, however, as the AUD fell in tandem with the NZD after RBNZ Governor Alan Bollard said that New Zealand’s recovery from the global recession will be slower than Australia’s.

In the mean time, RBA Governor Glenn Stevens issue a speech about “The Road to Prosperity” at 8:55 am GMT. During his last public appearance following a rate decision, he provided some clues regarding the RBA’s future monetary policies. He could do so again today.

[PipDiddy]

The Aussie lacked direction yesterday as currency traders sit on their hands prior the upcoming NFP report from the US. Despite this uncertainty, things are looking bright for Australia as the RBA seems poised to further raise rates.

The RBA monetary policy meeting minutes just released showed that the bank believes that Australia’s economy would probably grow more than three times during the fourth quarter this year. According to the minutes, the expansion would probably come from increased business investment and exports. Experts are betting that the RBA would increase rates by 25 basis points in the next meeting. This could prove bullish for the currency as the country’s benchmark rate already stands at 3.5%, the highest among the G-10 nations. This would give additional reason for investors to use the Aussie as for their carry trades.

No significant economic report up due today so expect the Aussie’s direction to be primarily dictated by shifts in risk sentiment caused by the NFP report from the US.

[PipDiddy]

After a day of hesitation, the AUD made headway in Friday’s session. Good news from the RBA monetary policy statement helped boost the Aussie dollar, letting the AUDUSD close the week at 0.9178.

In its report, the Reserve Bank of Australia made changes in their forecasts for growth – to the upside! Woohoo! The central bank said that GDP would grow by 1.75% this year, and 3.25% next year. This is up from its initial August estimate of 0.5% and 2.25%. Given that the RBA now believes the economy is growing faster than anticipated, could this mean another rate hike is coming up this month? Just something to keep in mind...

Early today, a report revealed that home loans grew by 5.1% during September. This was higher than projections of a 3.1% increase. The AUD rose following the report.

Later today at 3:20 am GMT, RBA Assistant Governor Dr. Lowe Philip will be speaking at an economic conference. Since he does have a high ranking position in the RBA, traders do listen to his speeches. Could he drop some juicy gossip about potential rate hikes?

[PipDiddy]

As the price of gold soared to a new high of $1111.7 per ounce, the AUDUSD climbed close to its most recent yearly high of 0.9328. USD weakness, which resulted mostly from the IMF's comments about the overvaluation of the USD, added momentum for the pair's ascent. Will it hit another yearly high this time?

As usual, the Australian economy has been showing signs of strength, particularly in its housing sector. Home loans surged by 5.1% in September, beating the consensus of a 3.1% increase and rebounding from August's 1.9% decline. This was also the indicator's strongest climb in the past six months. This shows that the Australian government's programs to provide rebates for first-time home buyers are working their magic.

On a less upbeat note, the ANZ job advertisements reading fell to -1.7% in October, signaling that the country's labor market may be in trouble. This was the indicator's first drop in three months, hinting that Australia's employment report due on Thursday this week might be weaker than expected.

But before that, Australia is set to release its index of business confidence at 12:30 am GMT today. The index has been steadily climbing since April and could post another uptick for October. If it does, then the AUDUSD pair might just chalk up a fresh yearly high...

[PipDiddy]

The Aussie flirted again with its yearly high in yesterday’s trading. The AUDUSD, however, fell short and closed at 0.9302. In any case, it is possible for the pair to set a new yearly high since its longer term uptrend is still very much intact.

Business confidence in Australia, as measured in the NAB business confidence index, rose to 16 in October, which is its highest score in about 6 years. This adds to the possibility that the RBA will once again raise its interest rate come December. China’s growth has been greatly helping Australia’s export industry and it is one of the primary reasons why the Australian economy is performing better compared to its counterparts from the West. The increase in business confidence can be seen as an evidence that the country is now in a better economic position.

Speaking of China, the country is set to release its latest annualized industrial production and CPI data. Industrial production is expected to rise again by 15.3% after already posting a 13.9% gain in the previous period. China’s CPI is also seen to improve to -0.4% from -0.8%. Since China is one of the major trading partners of Australia, positive results from these accounts could also reflect positively on Australia’s economy and the AUD.

Earlier today, Australia Westpac consumer sentiment unexpectedly fell by 2.5% in November. This may give RBA Governor Glenn Stevens another reason to postpone another rate hike in December. Overall, consumer and business confidence are still on high levels.

For the rest of the day, trading of the AUD could turn light because of a bank holiday in the US.

[PipDiddy]

The Aussie is doing it all again, marking a new set of yearly highs on account of better-than-expected economic data. The Aussie rallied all the way to 0.9370 when the employment change report printed unexpected results.

The employment change report, instead of showing 10,100 net jobs were lost in October, revealed that 24,500 net jobs were created. An increase in the number of employed people means that more money is put in the hands of consumers, thereby increasing their purchasing power. This could help Australia continue posting GDP growth, especially since consumer spending accounts for more than two-thirds of its economic activity. Despite this, joblessness in the country edged up to 5.8% from 5.7%.

No economic data set for release today but given the surge in risk appetite, we might see the Aussie gain a bit more ground today.

[PipDiddy]

It looked like the AUD was going to set a new yearly high once again, but strong USD buying throughout the day actually brought the pair lower. The AUDUSD hit a high of 0.9370 before slumping the rest of the day to close the US session at 0.9226.

The Aussie had jumped after yesterday’s unemployment report, but couldn’t sustain these gains as the USD gained against all other majors. Could this be a mere case of profit taking after all the dollar selling the past few trading sessions?

With nothing coming up today, watch out for more potential profit taking that could take place to end the week. In addition, take note that the preliminary Univesity of Michigan consumer confidence and inflation indexes are coming out from the US at 2:55 pm GMT.