Daily Economic Commentary: Australia

Trading Discussion News and Economy
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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.

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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.

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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!

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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.

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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.

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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.

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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.

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After two days of disappointment, the Aussie finally came through with a huge win over the greenback and the yen yesterday. The AUDUSD jumped to 0.9315 from 0.9229. Similarly, the AUDJPY surged to 86.77 from 85.27.

The Reserve Bank of Australia (RBA) published the minutes of its recent monetary policy decision that was made last April 6. The bank was foreseeing a stronger growth particularly in the country’s exports which could lead to higher inflation in the future. It also omitted the word “gradual” when it discussed about its next rate hikes. Its upbeat outlook on Australia’s economy caused the Aussie to rise back from the dead. To have an inside look on the bank’s minutes, kindly see the article that my colleague, Forex Gump, wrote here.

The rise in gold prices also fuelled the Aussie’s drive higher. Gold contracts for June rose by 0.3% to $1139.20 per ounce. Remember that Australia is one of the major suppliers of gold in the world. So usually an increase in gold prices also lead to a jump in the Aussie. To learn more about the relationship between the Aussie and gold, kindly click here.

Earlier today, Australia Westpac leading index for the month of February was issued. February’s index showed an advance of 0.5% on top of the month prior’s 0.4% gain. The result, though, was not enough to boost the Aussie further.

No other major economic reports are due today in Australia. Given the lack of economic flows from the country, the Aussie could range or even dip for a while today as traders start to pocket their profits from yesterday.

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The Aussie was unable to hold on to its gains over the greenback yesterday. The AUDUSD ended the US trading session at 0.9284, 30 pips lower from its Asian session opening price. Hmm, another opportunity for the bulls to buy the Aussie at a cheaper price?

No data coming out for today from Australia, but please do watch out for the large amount of reports coming out of the US. Among the things to keep an eye out for are the following: the producer price index, the initial jobless claims and the existing home sales. Better-than-expected results on the reports could trigger risk appetite, and push the Aussie higher once more.

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Up and down day for the Aussie, as the AUDUSD pair basically stayed within its average daily range of about 80 pips. The pair ended the day at 0.9288, but appears to be heading lower to start today… Is this a sign of things to come?

We could be in for an interesting battle today, as it appears that risk aversion is slowly creeping back in. Greece debt issues caused the euro to stumbled yesterday, which probably helped the dollar post gains across the board on increased risk aversion. Naturally, this didn’t bode well for the Australian dollar, as investors looked to unload on higher yielding assets.

However, RBA Governor Glenn Stevens will be delivering a speech called “Economic Conditions” at Toowomba later today at 2:50 am GMT. Seeing as how the RBA delivered some pretty hawkish statements earlier this week, could we Stevens drop more hints of optimism today?

What will win out – optimism towards the Australian economy? Or risk aversion caused by events halfway across the world? Or will we see more consolidation like what we’ve been seeing the past couple of days?

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The Aussie lost its mojo last Friday and fell to a low of 0.9171 against the greenback after RBA Governor Glenn Stevens hinted that the central bank would no longer be aggressive with its rate hikes. Would the Aussie be able to bounce back this week?

According to RBA Governor Stevens, interest rates are already “close to average”, which means that the central bank could take another breather from its consecutive rate hikes. He also pointed out that the Australian economy is strongly expanding and that inflation is close to target. Still, the upcoming inflation reports this week could be a key factor in the central bank’s future policy moves.

Tomorrow, Australia is set to release its producer price index, which could post a 0.7% increase for the first quarter of the year. Since this indicator measures the change in price of finished goods and services sold by producers, it is considered a leading indicator of overall inflation. The CPI, which tracks the change in the price of goods and services purchased by consumers, is due Wednesday 1:30 am GMT. After posting a 0.5% rise in price levels during the last quarter of 2009, it could show a 0.9% increase for the first quarter of 2010. Well, if the actual figures show that inflation is stronger than expected, the RBA could use a few more rate hikes to keep it in check…

Enough about inflation… Let’s take a glimpse at the other economic reports due this week.

The NAB quarterly business confidence index is due tomorrow, although the exact schedule of release is still tentative. The index, which measures business sentiment and expectations, has been giving positive readings for the past couple of quarters. This means that the businessmen included in the survey believe that conditions are improving and could continue to do so. Another positive reading for the first quarter could give the Aussie a nice morale boost.

On Thursday, the CB leading index will be released. This composite index provides a comprehensive look at the recent performance of the Australian economy and an uptick could provide support for their currency. After dipping by 0.2% in January, the index is expected to rebound and post a positive figure for the next month.

Lastly, Australia is set to release its new home sales and private sector credit reports on Friday. New home sales dropped by 5.2% in February and could bounce back with a modest increase for March. Meanwhile, private sector credit, which accounts for the change in the value of new credit issued to businesses and consumers, could post another 0.4% increase in March.

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Hi there Pip D seems you are the only poster in this forum. Nice work though, looks like there might be some strength against the U.S today with most currencies

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Quite possible! Then again, we might see the rally fade out once the US trading session begins!

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Yep I only talking short term as only trading into the UK markets, as I am in Brisbane not that interested in what happens when I am asleep until the next day

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Despite trading flat yesterday, the Aussie still managed to book some marginal gains over the greenback and the yen. The AUDUSD rose to and closed at 0.9271 from 0.9259. Similarly, the AUDJPY also climbed to 87.15 from 87.04.

No economic reports came out of Australia yesterday due to a bank holiday. The lack of economic catalysts from Canada, US, and the other major countries caused the Aussie to just move in a range-bound fashion.

Earlier today, Australia’s producer price index (PPI) for the first quarter of the year was released. The price of finished goods and services that were sold by producers has risen by 1.0% during the first quarter after dipping by 0.4% during the last leg of 2009. The latest PPI reading exceeded the market’s consensus of 0.7%. This gave support to the AUD for awhile after the result was made public.

The Aussie’s rise, though, was short lived when the NAB quarterly business confidence index for the same period slipped to 17 from 18, indicating that the present business conditions was not as rosy as it used to be.

No other data is due today in Australia. Given this, the Aussie could just move sideways during the rest of the day.

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Surprise, surprise! The Aussie found itself sinking to new monthly lows against the greenback when risk aversion became the dominant market theme yesterday. The AUDUSD closed the US trading session at 0.9156, more than 100 pips from its Asian session opening price.

In addition to Greece debt concerns, there is growing fear that China will start tightening their monetary policy. As one of Australia’s biggest importers, this could decrease demand for Australia’s products down the line and put a cap on Australia’s fast pace of recovery.

Earlier today, Australia released its consumer price index for the first quarter of this year. The result was slight better-than-expected (0.9% vs. 0.8%), which gave the bulls an opportunity to buy the Aussie. Remember, rising inflation is usually seen as a sign for further rate hikes.

No real red flags on Australia’s economic calendar today but do watch out for the FOMC’s decision on interest rates later tonight. Also watch out for more news coming out of euro zone today, as it could cause another wave of risk aversion to hit the markets and give more reason for the bears to take the Aussie lower.

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Mid-week reversal anyone? A day after getting swept away by a wave of risk aversion, the risk appetite high-tide came back to hit the trading shoreline. The AUDUSD erased almost all its losses from the previous day, rising 100 pips to close at 0.9248.

Aussie traders became more bullish once CPI results were released yesterday, as annualized inflation now stands at 2.9%. With inflation rising, traders are speculating that the RBA will hit the markets with another rate hike next week. My question is, has this already been priced in the markets?

The Aussie also got a boost from comments made by RBA Assistant Governor Guy Debelle. There were concerns that the ongoing debt problems in Europe would spill on over onto other financial markets outside the continent. Debelle calmed the markets by saying that the debt crisis has yet to affect Australian markets and borrowing costs.

Earlier today, the Conference Board’s leading index was released. The index came in slightly disappointing, as it fell more than anticipated. Expectations were for a decline of 0.2%, but the index dropped by 0.3% this past February. This marked the second consecutive month that the index well. The index reportedly dropped because of a significant drop in building approvals. Is this a sign that labor market remains weak? Could this give the RBA reason to pause interest rates? We shall have to wait and see!

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Despite the dip in Australia’s leading index, the Aussie was able to make headway against the greenback and the yen yesterday. The AUDUSD edged closer to the psychological 0.9300 handle while the AUDJPY landed above the 87.00 mark.

Australia’s leading index fell again in February, printing a 0.3% decline for the month. Components of the report showed that the huge drop in building approvals offset the improvements in the other indicators. Still, the Aussie seemed to ignore this setback as risk appetite came back with a vengeance yesterday.

The new home sales figure and the private sector credit report are due today. After dropping by 5.2% in February, new home sales could post a rebound this time around. After all, demand for new homes could start to rise now that house price growth reportedly slowed after the RBA’s consecutive rate hikes. Meanwhile, private sector credit could be up by another 0.4% in April. If the actual figure meets the consensus, it would mark the fifth consecutive month that the total credit issued to businesses and individuals increased. Stay tuned for the actual results at 1:30 pm GMT.

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It looks like the severely overbought Aussie finally gave back some of its gains last Friday. The AUDUSD went as high as 0.9325 before settling at the end of the day at 0.9251. The losses were far from convincing though, indicating that the down move could simply be investors taking profit for the month of April.

Earlier today, Australia’s house price index came in better-than-expected, which provided the Aussie with some buying support. The index showed that the house price rose 4.8% during the first quarter of 2010, higher than the 3.2% increase initially predicted.

Australia’s commodity index is also scheduled for release at 6:30 am GMT today. The index has been trending upwards for the past six months now so I have reason to suspect that it would come out positive later. If I am correct, we could see the Aussie find some buyers again…

Another important event to watch out for this week this week is the Reserve Bank of Australia’s interest rate decision tomorrow. With Australia’s most recent consumer price index disturbingly higher-than-expected, analysts are betting that the RBA will once again raise rates by 25 basis points to 4.50%. Keep a close eye on the Aussie this week folks, as traders could have already priced in their expectations. If the RBA decides to keep rates steady at 4.25%, expect to see the Aussie drop like a hot potato!

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After gapping down to start the week, the AUDUSD recovered and stayed above water. After rising 50 pips for the day, the pair continued to tread. Hmmm… what exactly are traders waiting for?

Before I indulge with what’s happening today, let me talk about commodity prices. Data released yesterday revealed that commodity prices have risen by 29.4% in the past year… which didn’t surprise me too much. Take a look at gold and oil – their prices just keep rising! This has benefitted the Australian dollar, which has been on a steady rise the past year.

Could the AUDUSD be headed to parity? Well, if the RBA keeps raising interest rates… maybe, just maybe!

Speaking of interest rates… the RBA will be releasing its interest rate decision later today at 4:30 am GMT. Traders are expecting the bank to raise the rate another 25 basis points, bring the cash rate to 4.50%. As Forex Gump pointed out in his blog recently, the RBA has been pretty hawkish as of late, which traders have taken as a sign of more interest rate hikes.

I’ve got a hunch that traders have priced in a rate hike, so we may not see too much of a reaction when the RBA makes it statement… unless of course the bank throws a curveball by deciding to keep rates steady instead! If this happens, we could just see the AUD take a dip in the deep end.