Daily Economic Commentary: Australia

Yawn! The AUD/USD was rocked back and forth in a pretty quiet range last week. Will it wake up from its slumber and break out today? There are plenty of economic news that could jumpstart some action in this pair starting Tuesday.

The agenda for Tuesday includes CB leading index, NAB quarterly business confidence figures, and a speech by RBA Governor Glenn Stevens. No forecasts have been provided for the leading index and business confidence reading. The leading index has been up by 0.7% in the previous month while business confidence lingered in the negative territory at -24. If large improvements in these indicators don’t cause an upside breakout for the AUD/USD, then there might be something fishy going on…

Another potential breakout scenario could take place if RBA Governor Stevens starts talking about an end to the RBA’s monetary easing policies. Otherwise, the AUD/USD might be stuck in the same range as a pullback in equities and commodity prices could dampen risk appetite.

Data on the housing industry is due on Wednesday, when HIA new home sales report will be released. On Thursday, building approvals data is expected and this report should provide a pretty good picture of where the construction industry stands. Lastly, on Friday, MI inflation gauge and private sector credit data are due but these are expected to have minimal impact on price movement.

One step higher. The AUD continued its ascend over the USD and JPY in yesterday�s trading. It did so for the most part of the Asia and Euro sessions. It, however, took a breather during the US session as investors decided to bank in their profits.

It was a quiet day in Australia in the land of the boomerangs yesterday. The AUD, though, still managed to move swing higher due to the persistence of risk appetite over the capitals markets particularly in the Asia and Euro trading sessions.

Australia�s Conference Board leading index in May was just released earlier today. The index came in well below expectations at -0.1% after rising by 0.3% in April. A negative reading points to a sour outlook in Australia�s economy. The AUD fell following the update.

The NAB business confidence survey for the second quarter will also be published today at 1:30 am GMT. The index came in at -24 during the first quarter of the year. The index will most likely register a higher reading because of the recent rallies that we saw in the markets.

RBA Governor Glenn Stevens is also due to deliver a speech titled “Challenges for Economic Policy” at the Anika Foundation Luncheon, in Sydney. Market participants will look into his speech for clues regarding future monetary policy.

Reserve Bank of Australia Governor Glenn Stevens finally gave AUD bulls to take the pair to new yearly highs yesterday. His extremely hawkish comments took the AUD all the way to 0.8338 versus the USD before retracing some of its gains during the US session.

Apparently, Stevens believes that the nation�s economic downturn isn�t as bad as initially thought. Stevens even said that the current recession isn�t �one of the most serious� ones. Economists are saying that the RBA might be the one of the first central banks to raise interest rates. They say that the bank might start increasing benchmark interest rates as early as December this year.

Today, we�ve got the Housing Industry Association�s report on new home sales tentatively for release. Housing data usually has a significant impact on the foreign exchange market because traders and economists alike use it as a leading indicator of future economic activity. They believe that an improvement in home sales would also stimulate activity, in say, the furniture sales and mortgages.

After breaking out of a recent channel and registering a new yearly high, the Aussie dollar has wiped out the past couple of days on increased risk aversion. After China�s stock market crashed by 5% yesterday, the AUDUSD followed suit and dropped to .8165.

The Chinese stock market crashed on speculation that the Chinese central bank would order banks to tighten liquidity and set aside more funds for reserves. China is one of Australia�s key trading partners, so the AUD does get affected by news coming out from China. The next couple of days could provide some direction for the AUD.

Over the past 24 hours, some housing data has been available. The Housing Industry Association revealed that new home sales rose by 0.5% in the month of June, after it had experienced a 5.7% drop in May. At the same time, building approvals rose by 9.3%. The rise was mostly attributed to first home buyers, who have benefited from aid given by the Australian government. This news came out a day after RBA Governor Glenn Stevens warned against a housing bubble that could form due to low interest rates and the boost in first home owner�s grants. If the RBA is avoiding a housing bubble, they may raise interest rates and cut back on grants. This in turn, could have a drastic effect on new home sales. Just something to keep note of for the rest of the year…

No high impact reports are scheduled for the rest of the week, with medium impact Private Sector Credit m/m report scheduled for release tomorrow at 1:30 am GMT. This report measures the change of credit issued to consumers and business in the past month. Aside from that, be on the look out for any news coming out from China, as it could spark another run to risk aversion.

Aussie for the rebound! The AUD/USD regained some ground yesterday after being pummeled down by risk aversion a couple of days ago. The reason behind the Aussie rally? The surge in building approvals.

Building approvals in the Land Down Under made a 9.3% leap in June after being down by 11% in May. This marked the largest increase in four years as government grants and low borrowing costs boosted demand for buyers. Building approvals may have been down by 14.3% from a year earlier but the monthly rise was taken as positive news, which carried the AUD/USD above the 0.8200 mark.

The last set of economic news from Australia this week covers Melbourne Institute’s inflation gauge and private sector credit data. The inflation gauge, which is due at 12:30 am GMT, provides a monthly look at consumer inflation. Last month’s reading was a 0.4% increase. Private sector credit is expected to be up by 0.1% in June. The actual figure is due at 1:30 am GMT.

The AUD inched higher over the USD and JPY in last Friday�s trading. It got its boost from the improvements in the US and Chinese�s fundamentals.

Australia�s bank lending in June rose in line with expectations by 0.1% after falling by 0.1% during the month prior. The recent rebound in consumer confidence is said to be the one that prompted the demand for loans particularly from the first-time home buyers. The AUD rose marginally following the release.

US�s advance GDP for the second quarter came in better-than-expected at -1.0% from -6.4%. It was only projected to come in at -1.4%. This urged market participants to take in more risk in the US capitals markets as such result reflects very well on the US�s economy. Higher yielding currencies like the AUD benefited. Moreover, the AUD further increased with the advance, albeit marginal, in China�s manufacturing PMI in July from 53.2 to 53.3. China is one of the biggest export markets of Australia. A healthy Chinese manufacturing sector would definitely assist the Australian exports.

Today (1:30 am GMT), data on the ANZ job advertisements for the month of July will be released. The index fell by -6.7% in June. An increase in the number means more job openings. Hence, any gain would generally be bullish for the AUD.

Zoom zoom went the AUD yesterday as it made another convincing yearly high for the second trading session in a row! It seems that risk appetite is finally in full bloom, much to the benefit of the high-yielding AUD. Today, the Reserve Bank of Australia will be announcing its interest rate decision so expect a volatile AUD.

Currently, the benchmark interest rate stands at 3%… Pretty high considering how low rates are on the western side of the world! This gives the AUD a slight advantage in terms of yield which attracts investors to hold the currency in order for them to get the best bang for their buck. In any case, economists aren�t expecting any changes in the bank�s outlook, much less their interest rates as signs of the recession easing are popping up in many sectors of the global economy.

The house price index and the retail sales report just released show how strongly risk tolerance is affecting the foreign exchange market. The house price index printed a 4.2% rise, propelling the AUD around 40 pips upwards… another yearly high! The retail sales report, on the other hand, which showed a 1.6% drop was ignored.

Australia has been one of the more optimistic nations in the course of this global recession and experts and analysts are saying they might be one of the first countries that would raise interest rates. Because of this, it would be prudent to keep an ear out of any hints of interest rate hikes from the RBA as this would really push the AUD higher… Given how risk appetite is affecting the markets right now, prospects of a policy shift could extend the AUD�s gains further.

Make it three in a row! Yesterday marked the third consecutive day that the AUD set a new yearly high, as the AUDUSD hit .8470 early in the Asian trading session before closing the day at .8442. With risk tolerance in full gear, can the AUD extend its run for a fourth consecutive day?

The Reserve Bank of Australia kept their interest rate at 3.00% yesterday, as they believe that the recent rate cuts have been instrumental in keeping the economy afloat (and why wouldn�t they want to take credit for their �decisions�?). RBA Governor Glenn Stevenssaid that the Australian economy is doing much better than forecasted a few months back, as exports and consumer spending have been resilient. He said that with signs of rising consumer and business sentiment, the Australian economy has most likely avoided a severe contraction.

Early this morning, the Australian Trade Balance report was released. As of this time, no data was available. It is expected that the report will show a deficit of AUD $790 million for the month of June.

Tomorrow, we could see some make or break moves with unemployment data coming out at 1:30 am GMT. It is expected that 17,800 jobs were lost in July, which would bring the unemployment rate to 6.0%. Rising unemployment has been one of the major issues holding back the RBA from hiking their rates, so take note of this development � if it comes out much better than forecasted, could we be in line for a rate hike next month?

That being said, it seems that with all the positive news, it is only a matter of time before the RBA is the first central bank to hike its interest rates. With the AUD already having the highest interest rates amongst major currencies, I think we could see a nice run by the AUD should the RBA decide to hike rates soon. Traders and investors have been eating up higher yielding assets as of late � a rate hike would certainly make the AUD more scrumptious that it already is.

Consolidation is still the theme for the Aussie’s price movement yesterday. After reporting a surprise improvement in its trade balance, Australia is now gearing up for employment data due early today.

Australia’s trade deficit, which was expected to widen from 740 million AUD to 790 million AUD, narrowed to 441 million AUD. This unexpected improvement in the nation’s trade gap was spurred by the recovery in China, which boosts demand for Australia’s natural resources. China, which is a major trade partner of Australia, posted a 7.9% year-on-year growth in the second quarter of this year. The substantial rise in Australia’s exports was led by a 17% increase in gold exports. Imports, on the other hand, stagnated. Imports of consumer goods rose by merely 4%.

Up ahead, employment data is expected to be a bit of a downer for the Land Down Under. A total of 18.8K jobs are expected to be shed this month, bringing the unemployment rate from 5.8% to 6.0%. If the forecasts are accurate, then the employment reports could put some downward pressure on the AUD. The actual data is due at 1:30 am GMT.

The AUD lost its grip against the USD and the JPY after it recently posted new yearly highs. The resistance at AUD�s current levels (80.00 against the JPY and 0.8400 versus the USD) appears to be somewhat solid. The AUD/JPY and AUD/USD have attempted to break the said levels but were not able to do so. The pairs have been consolidating around the new highs for about 4 days now.

Australia�s unemployment rate for the month of July, which was expected to rise to 6.0%, has remained the same at 5.8%. The unexpected 32,200 in additional hires during the period has put a cap on Australia�s unemployment rate. The positive figure came in as a surprise since just last month Australian employers cut about 23,100 jobs. 18,800 were initially expected to lose their work. In July, the number of full-time jobs, however, dropped 16,000 but the number of part-time jobs increased 48,200. In any case, the increase in employment change during the period can be seen as another sign of the economy�s resilience.

The AUD rose for awhile following the report. The data supposedly positive implications were not able to propel the price higher. The AUD/USD and AUD/JPY pairs just continued ranging afterward.

The Reserve Bank of Australia has just released its monetary policy statement earlier today. The RBA said that it has revised its growth outlook as it now sees its GDP to rise by 0.5% in 2009 before advancing to 1.0% in the year to June 2010. The recent upbeat data suggests that the economy is performing better than expected. According to the RBA, the government�s fiscal stimulus plus the central bank�s monetary easing combined with china�s growth have helped the economy.

Despite the encouraging statements and upbeat outlook by the RBA, the AUD fell against the USD and JPY following the release. This suggests that the AUD may be overpriced at current levels.

Despite upbeat comments from the Reserve Bank of Australia, the AUD failed to hold its head above 0.8400 last Friday. It closed last week at 0.8357, exactly the same price as its week open price. Have buyers run out of steam? Will sellers take the lead this week?

It looks like Australia is off to an ugly start as the report on home loans just released showed an increase of 1.1%, which slightly disappointed traders as they were expecting a 1.9% rise.

Looking ahead, no hard hitting economic reports are due for release this week. In any case, expect to see the National Australia Bank to release its business confidence survey tomorrow at 1:30 am GMT. The survey tries to assess whether businesses are expanding using a positive/negative scale. It was able to hit positive for the first time after treading negative ground since January 2008 last reporting period indicating that Australia is well on its way to economic recovery. The report could print another positive reading as the underlying trend seems to be to the upside.

After riding high on uptrend waves a couple weeks back, it seems that the AUDUSD pair is now chilling, surfing in a downtrend channel over the past week. The pair largely remained in range yesterday, closing the day at .8371, just a few pips above its opening price.

Coming up, we have the NAB Business Confidence index due at 1:30 am GMT. The latest release had a reading of 4, indicating improving conditions in the Australian business sector. Take note that 0 is the score that separates improving and worsening conditions.

Tomorrow, the Westpac Consumer Sentiment index will be released at 1:00 am GMT. The July edition showed an improvement in the index of 9.3%. I wouldn�t be surprised to see another rise, given the recent developments and news coming out of Australia.

The Aussie has remained resilient despite the strong dollar rally following the NFP report last week. Is it only a matter of time before the AUD makes another run at a new yearly high? Or could last week�s dollar rally be a signal of a change in sentiment? We may have to wait for Reserve Bank of Australia Governor Glenn Stevens speech on Thursday (11:30 pm GMT) for a spark in either direction.

The Aussie was wiped out yesterday as disappointing economic data from China hinted at weaker demand for Australia’s resources. The AUD/USD slid below the 0.8300 handle while the AUD/JPY dipped to a low of 79.28.

Despite the NAB business confidence index recording an improvement from 4 to 10, the overall outlook for Australia was clouded with pessimism after China’s industrial production figures failed to meet expectations. Analysts projected that industrial production in the Asian giant would be up by 11.5% but the actual figure came in at 10.8%. Slower-than-expected growth in Australia’s major trade partner translates to weak demand for Australian commodities in the future.

Moving on… Today could be a more promising day for the Aussie, especially if Westpac consumer confidence index reports an improvement over last month’s 9.3% reading. The actual data will be released at 1:00 am GMT. Also, the wage price index is due today. Labor costs are expected to be up by another 0.8% in the second quarter.

While these reports are relatively low-impact, an event risk for the AUD/USD (as well as other currency pairs) is today’s FOMC statement. The Fed could push through with its $300 billion purchase of longer-dated US securities and who knows what this means for the AUD? Market correlations have been out of sync lately, particularly after the recent NFP report, and it’s unclear what the possible effects that a dovish or hawkish FOMC statement could have. If you ain’t ready to brave the unpredictable currents, then it would be best to sit on the sand and wait for the waves to calm down.

For a moment there I thought that the other day�s slump would mark the start of AUD�s demise. I can�t say with exact precision what will happen to the AUD but it seems like its most recent drop was just a �healthy� correction. The AUD, yesterday, bounced back from the 38.2% Fibonacci retracement level of the uptrend that started during the first week of July.

Australia�s consumer sentiment index for August jumped by 3.7% to 113.4, its highest score in two years. The index for July also rose by 9.3%. Australia�s wage price index for the second quarter also advanced in line with expectations by 0.8%. Increasing confidence and wages will give a hand in Australia�s recovery as consumers tend to spend a little bit more given the positive outlook. These reports, however, were not high impact as the overall USD bullishness remained to be the theme during the time of the release.

The AUD sunk during the Asia session. It was only buoyed afterward by the market participant�s anticipation of the Fed�s QE program extension.

Australia�s consumer inflation expectation for August is due today at 1:00 am GMT. The index rose for a third time last month by 3.2% as encouraging housing and employment data indicates that the economy indeed marching up. Inflation expectations have a tendency to be �real� since workers usually haggle for higher wages if they see prices will go up. An increase in the account can give some support for the AUD at least in the short term.

It seems that the wave of positive sentiment generated by the FOMC helped spur traders� appetite for risk yesterday. And we all know that when risk appetite hits the market, it�s usually the AUD that benefits the most. It broke past through 0.8400 against the USD during Asia session and managed to keep its head well-above that price level all throughout the US session.

Traders are becoming more and more optimistic as to where Australia�s economy is headed and some economists even said that Australia could hike rates as early as December. This sentiment seems to be shared by the country�s central bank too. Reserve Bank of Australia Governor Glenn Stevens hawkish speech this morning indicated the it would be appropriate for the RBA to start adjusting interest rate back towards normal levels. If this kind of sentiment persists, the AUDUSD pair could really head north and make another set of new yearly highs.

No economic report due for release today so the AUD would probably be driven by degrees in risk tolerance once again.

Interesting way to close the week for the AUD, as the AUDUSD pair went off to set a new high early at .8479 in the Asian session before dropping like a brick and closing at .8301.

Coming up for Australia, we have the minutes of the last Monetary Policy meeting, due at 1:30 am GMT tomorrow. The document contains a detailed record of what was discussed in the Reserve Bank of Australia�s last monetary policy meeting.

Later in the day at 11:20 pm GMT, RBA Assistant Governor Malcolm Edey will be delivering a speech entitled “Examining the Impact of the Global Financial Crisis on Retail Financial Services in Australia”. I suspect that he may discuss the current interest rate decisions and their impact on economy. Given how well (relatively speaking of course) Australia has done during the recession, it should be interesting to see his take on this. Take note, a reason why the AUD has made intraday highs was because of comments made by RBA Governor Glenn Stevens, who said that interest rates could be raised by as much as 2%. Such comments have the tendency to spur demand for the currency.

The steep fall to end last week was probably caused by a run back to risk aversion as poor consumer sentiment data was released during the US session. This hints that market sentiment still plays a large role in currency markets, so be on the lookout for any sentiment shifting data that comes out.

The Aussie got wiped out yesterday as risk aversion took its toll on commodity currencies. Both the AUD/USD and AUD/JPY had a tough time getting back on their feet until strong economic data, in the form of TIC purchases and Empire State index, were released from the US.

The AUD/USD slid below the 0.8200 mark as the effects from last week’s decline in US consumer confidence carried on to the first day of the week. No economic reports were released from Australia yesterday, leaving the AUD vulnerable to risk aversion. For today, the minutes from the RBA’s latest monetary policy meeting are due at 2:30 am GMT. RBA Governor Glenn Stevens has already been dropping hints of a rate hike and minutes from central bank’s monetary policy meeting could shed some light on why and when they plan to raise rates.

Another set of market-moving reports are due from the US today. These are building permits, PPI, and housing starts. Building permits and housing starts are expected to post marginal improvements from the previous readings while producer prices are predicted to slump by 0.2%. If the actual figures miss the forecasts, then risk aversion might be here to stay…

The Aussie rebounded in yesterday�s game after losing sharply for two days. Driven by risk appetite, the AUD went on the offensive and scored one against the boys from the US and Japan.

In its MPC minutes yesterday, the Reserve Bank of Australia noted the risk of raising the bank�s interest rates too soon. Australia was one of the first economies to emerge from the global recession and with the recent improvements in the economy�s condition, many investors speculated that Australia will be the first one to upgrade its rates. In yesterday�s report, however, the RBA said that hiking the rate too soon would kill confidence and demand since doing so consequently makes borrowing costs more expensive. Another uncertainty came whether the recent developments were mainly due to the government�s cash handouts. If it is, then such growth might not be sustainable. The RBA, therefore, would wait for further developments for it to better gauge the economic environment before it would increase its rate.

Earlier today, Australia’s Westpac leading index for the month of June was released. The previous month�s reading of -0.2% was negatively revised to -0.4%. The latest score however came in at 0.7%. The index is comprised of consumer confidence, housing, stock market prices, money supply, and interest rate spreads data which is used to gauge the future direction of the economy. A positive reading should reflect well on the economy and the AUD. However, it seems like the negative revision on the previous month�s mark has more impact on the AUD. The AUD slid following the report.

No other top tier economic reports are due in Australia and in the US. Persistence of risk appetite, however, would keep the AUD afloat.

AUD bulls just refuse to let the currency go! Every time the AUD dips in value, traders find some reason to buy it and take it topside again. Can�t really blame them though as Australia seems to be at the forefront of economic recovery… Higher interest rates, return to growth, declining unemployment… With the IMF declaring that the recession is over, will risk-taking push traders to take the AUD to new yearly highs again?

No economic data released yesterday and expect nothing for today and tomorrow also but keep a close look out on risk sentiment. It has been on a roller coaster ride as of late and with the recent developments regarding the recession, the AUD is at an important crossroad. If risk appetite persists, we might see the AUD rally today.

The AUD trickled up against the dollar, as the AUDUSD pair closed higher for the 3rd consecutive day after trading within a tight range for most of the day. Will risk appetite continue to boost the AUD, possibly to another new yearly high? Or will we see a pullback?

Slow day for the Land Down Under, as no economic reports were released. Nothing is expected today either, so better be on the lookout for reports that are coming out from the Euro zone and US. These reports may cause some volatility during the later sessions so watch out for strong waves that could shake risk sentiment � you dont want to be drifting out to the middle of the Pacific Ocean when you�re trading!