The Australian dollar was the weakest of the major currencies last week, and a bearish engulfing candle on the daily AUDUSD charts on October 1 suggests further declines could be in store.
Australian Dollar Rally May Finally Be Losing Steam
[B]Fundamental Forecast for Australian Dollar: [/B][B]Bearish[/B]
- Australian retail sales rose for the first time in 3 months during August
- The TD Securities’ inflation index fell to 1.3%, the lowest since records began 6+ years ago
The Australian dollar was the weakest of the major currencies last week, and a bearish engulfing candle on the daily AUDUSD charts on October 1 suggests further declines could be in store. Since the Australian dollar still tends to move with other risky assets, traders should look for any fallout from the release of the G7 statement over the weekend. Though the statements don’t usually signal any sort of groundbreaking new biases, there are lingering concerns that there may be a more pronounced focus on currencies, and more specifically, US dollar weakness. Such a move would likely lead the US dollar higher, and thus, AUDUSD lower, on speculation of a coordinated intervention effort. Later in the week, the Australian dollar is going to encounter two of its most market-moving reports: a rate decision from the Reserve Bank of Australia and the net employment change.
On Tuesday, the Reserve Bank of Australia (RBA) is anticipated to leave their cash rate target unchanged for the sixth straight month at 3.00 percent, and the Australian dollar may only respond to a change in the bias of RBA Governor Glenn Stevens’ monetary policy statement. As it stands, Credit Suisse Overnight Index Swaps (OIS) are pricing in a 22 percent chance of a 25 basis point rate hike during this upcoming meeting, and 175 basis points worth of hikes over the next 12 months, which is generally in line with what we’ve seen since early August. It was actually in early July when the RBA’s bias shifted from dovish to neutral, as Stevens removed a line from his statement noting that “scope remains for some further easing of monetary policy.” As long as we see these RBA statements continue to provide progressively optimistic outlooks, the markets are likely to remain in favor of large rate increases over the next year. However, if the RBA starts to signal a more cautious tone, this sentiment could shift very quickly and lead the Australian dollar lower.
On Wednesday, the net employment change for the nation is anticipated to fall for a second straight month, this time by 10,000. As a result, the Australian unemployment rate is projected to edge up to a 6-year high of 6.0 percent from 5.8 percent, but this isn’t so bad when compared with other regions like the US, the UK, and the Euro-zone where unemployment has reached 26-year, 12-year, and 10-year highs. Regardless, the net employment change is similar to the US non-farm payrolls report in that the results are notoriously difficult to predict and thus, prone to providing “surprising” news that can trigger volatile moves in the Australian dollar.