Australian Dollar Sentiment May Shift on Key GDP, RBA Results


Australian Dollar Sentiment May Shift on Key GDP, RBA Results[/B]

[B]Fundamental Outlook for Australian Dollar: Bearish[/B]

The Australian dollar finished the week marginally lower, but an unexpected string of bullish economic data boosted medium-term prospects for the previously fast-falling currency. Indeed, economic results for the fourth quarter of 2008 have thus far surprised to the topside. Recent information suggests that the domestic economy remains in better shape than previously assumed—boosting fundamental outlook for the Australian dollar itself.

The upcoming week will bring an important mix of Australian economic data, and the AU$ will likely see substantial volatility on any surprises in a key number of reports. The first noteworthy piece of event risk comes on the Reserve Bank of Australia’s contentious interest rate decision due at 03:30 GMT on Monday, March 2. Interest rate traders predict that the RBA will cut rates by a minimum of 25 basis points to 3.00 percent, but there is likewise a fairly strong possibility of an aggressive 50bp move. Any number of results could elicit strong reactions out of the Australian Dollar, and it will be important to watch the actual rate decision and attached commentary—especially as it relates to future rate expectations.

Aussie dollar traders will subsequently keep a close eye on subsequent Gross Domestic Product and Trade Balance reports. The GDP release is forecast to show that the domestic economy actually expanded through the final quarter of 2008—no small feat given massive global economic headwinds. Unexpectedly strong economic reports to date lend credence to bullish forecasts, but surprises to the downside could potentially deflate the recent spate of hope for domestic economic prospects. Much the same can be said for Wednesday’s Trade Balance result. Australian industry remains highly dependent on global demand, and fast-falling exports bode poorly for broader economic growth. It will be important to watch whether Australian economic data continues to surprise to the topside—the AUD could once again destabilize on deterioration in fundamental sentiment.