[B]Australian Dollar Outlook Improves as Economy Remains Resilient[/B]
[B]Fundamental Outlook for Australian Dollar: Bearish
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- Australian trade outlook dims on outright crash in China commerce- AUD/USD breaks key channel resistance – time to go long?
- Australian employment report much better than expected – or is it?
The Australian dollar finished the week higher against most G10 counterparts, as strong rallies in the S&P 500 boosted the highly risk-sensitive currency. General improvement in market risk appetite allowed the AUD/USD to break above major technical resistance, and technicians have subsequently called for further near-term appreciation. Yet we remain mindful of false dawns for broader financial markets—these moments of relative complacency often invite significant deterioration in financial conditions. A relatively empty week of Australian economic event risk means that the Aussie dollar will remain at the mercy of broader risk sentiment moves. Needless to say, it will be critical to watch shifts in the S&P 500, ASX, and other key sentiment indicators.
Recent Australian economic data suggests that domestic conditions remain surprisingly resilient—boosting overall outlook for the domestic currency. Australian officials reported that the domestic economy added a net 1,800 jobs in the month of February, but a jump in the labor Participation Rate meant that joblessness increased. The domestic unemployment rate has gained 1.3 percentage points from its trough, while the US unemployment rate has surged 3.7 percentage points through the same period. Given that currencies move in relation to one another, being in the least-bad economic shape bodes well for the Australian dollar.
A relative stabilization in the rate of economic contraction likewise led the Reserve Bank of Australia to leave rates unchanged through their most recent decision—boosting the AUD’s yield advantage versus other key currencies. Australian growth prospects remain bearish in the face of massive global economic headwinds, but there is evidence to suggest that the AUD could benefit from more severe economic deterioration in other major world economies. We will subsequently have to keep close watch on economic data out of Australia, the US, and other key counterparts.