The Australian dollar surged to a fresh yearly high of 0.7716 against the greenback earlier this week, following the rise in market sentiment however, deteriorating fundamentals paired with speculation for a rate cut by the Reserve Bank of Australia could weigh on the exchange rate over the following week.
[B]
Australian Dollar Rally Stalls, Correction Could Follow Next Week[/B]
[B]Fundamental Outlook for Australian Dollar: Neutral[/B]
- NAB Business Confidence Survey Ticks Lower
- Australian Investment Lending Jumps in March
- Treasurer Swan Plans to Increase Government Spending, Bond Sales
- AUD/USD Monthly Forecast
The Australian dollar surged to a fresh yearly high of 0.7716 against the greenback earlier this week, following the rise in market sentiment however, deteriorating fundamentals paired with speculation for a rate cut by the Reserve Bank of Australia could weigh on the exchange rate over the following week. Meanwhile, Treasurer Wayne Swan announced that the government plans to increase the nation’s budget deficit to nearly 4.9% of GDP through the first half of 2010 in an effort to shore up the $1T economy, and pledged to raise spending on infrastructure in order to counter the downturn in economic activity. Moreover, the government stated that it will lower tax breaks and welfare payments while raising the cost of medical insurance for high net-worth individuals to fund the expansion in fiscal policy however, as the government forecasts the jobless rate to reach 8.5% by June 2010, market participants argue that borrowing costs need to fall lower as businesses continue to scale back on investment and employment.
At the same time, the economic calendar for the following week is expected to reinforce a weakening outlook for the region as economists forecast wage growth to falter in the first quarter while on the other hand, a rise in consumer inflation expectations could prop up the high-yielding currency as the RBA is expected to leave borrowing costs on hold next month. As the RBA looks to put a floor on the overnight lending rate at its lowest level in 49 years, the minutes of the May policy meeting could reinforce expectations for a neutral policy stance going forward as Governor Glenn Stevens forecasts the growth rate to increase 0.25% during the 12 months through June 2010 but nevertheless, Credit Suisse overnight index swaps shows investors project the central bank to lower benchmark interest rate further over the next 12 months as the downturn in the global economy intensifies. As a result, fundamental headwinds could push the AUD/USD lower next week, and may retrace the advance from the week ending May 5th to work its way back towards the 20-Day SMA. Moreover, the aussie-dollar ended the week lower for the first time since February, and the turnaround could lead to a corrective retracement over the following week as market participants weigh the outlook for future policy. - DS