Continued rallies in global risky asset classes left the Australian Dollar higher against the US and New Zealand Dollars to end the week’s trade. Overall momentum favors further Aussie Dollar appreciation, and we believe that a break of 0.7300 is likely.
[B]
Australian Dollar Poised to Break 0.7300 Against US Dollar[/B]
[B]Fundamental Outlook for Australian Dollar: [/B][B]Bearish[/B]
- Australian home sales unexpectedly pick up
- Business confidence likewise improves says NAB
- Australian dollar poised for breakout versus key counterparts
- Reserve Bank of Australia commentary remains key
Continued rallies in global risky asset classes left the Australian Dollar higher against the US and New Zealand Dollars to end the week’s trade. Overall momentum favors further Aussie Dollar appreciation, and we believe that a break of 0.7300 is likely. Recent domestic data pointed to improvement in Australian housing market conditions, and a marginal uptick in NAB Business Confidence results likewise bodes well for fundamental outlook. Perhaps most importantly, the general trajectory of risky assets favors further Aussie strength against foreign counterparts. Of course, a busy week of economic event risk could easily sway Australian Dollar sentiment and cut the AUD/USD rally short.
The Australian economic calendar promises no shortage of volatility, and indeed our bullish AUD/USD bias could shift on negative surprises in key reports. First on the ledger, Monday morning’s Building Approvals report is expected to show a modest improvement in construction activity. Markets will wait to see whether February’s surprise 7.8 jump was the sign of a potential market bottom, and clear signs of negative reversal could hurt general business outlook. The following day will provide the real fireworks, however; three top-tier economic reports are likely to force noteworthy volatility out of all AUD pairs.
First on the list, the Reserve Bank of Australia is widely expected to leave rates unchanged through its upcoming meeting. Yet Overnight Index Swaps show interest rate traders assign a 30 percent chance of a 25 basis point cut—a perfect recipe for post-announcement volatility. A surprise rate cut would most likely provide the biggest Aussie dollar move, but it will likewise be important to watch any shifts in post-announcement commentary. Shortly after the RBA announcement, traders will closely watch for surprises out of the Retail Sales report and simultaneous Trade Balance announcement. Both have historically forced large intraday moves on Aussie pairs, and traders should closely manage risk ahead of what promises to be choppy FX trading.
Wednesday’s Australian Employment Change and Unemployment Rate results round out the week of AUD event risk. The Australian unemployment rate has gone from generational lows of 3.9 percent to 5.7 percent in the course of 12 months. Though said jobless rate is still considerably better than the vast majority of international counterparts, employment remains an important consideration in fiscal and monetary policy. Especially noteworthy declines could derail the Australian Dollar’s recent recovery. - DR