Daily Economic Commentary: Australia

The AUD/USD made quite a leap last Friday, landing just a few pips below the 0.8400 handle. Prices of oil and gold continued to rise as risk tolerance surged on account of the favorable US home sales report.

Investors are now more willing to invest in Australian government bonds now that Australian Treasurer Wayne Swan announced the removal of withholding tax on foreign holdings of government bonds. This is to ensure the nation’s good credit standing as it plans to issue 60 billion AUD in debt this year. Although this would amount to almost 15% of its GDP, the Australian fiscal situation remains stable.

In terms of economic data, the first couple of days of the week are pretty quiet for Australia. On Wednesday, a report on construction work done for the quarter is due at 1:30 am GMT. Things should pick up pace by Thursday following the release of the CB leading index and private capital expenditure for the quarter.

Despite having an empty economic calendar, the Aussie was able to follow through with its huge gains last week yesterday. The broad markets were flat but the AUD managed to extend its score against the greenback and the yen.

No economic reports were scheduled in Australia and the US yesterday. Perhaps the upward momentum from last week carried over during the start of the Monday session which consequently lifted the AUD a bit higher. The Aussie, however, remained flat for the rest of the day as it just moved within a 90 pip range.

Australia�s economic calendar will be bare today. One news that might move it though is the CB consumer confidence survey in the US. The index is seen to come in at 48.1 from 46.6. The AUD may yet again benefit from risk appetite resulting from a jump in consumer confidence.

The AUD/USD remains directionless for the second consecutive day as it simply drifted in a tight 90-pip range all throughout yesterday. Still, looking at the bigger picture, it seems that the AUD is holding its ground pretty well at its highest price levels this year.

Expect to see the country�s leading index tonight at 12 midnight GMT. The leading index, which is made up of seven economic indicators, attempts to predict the general direction of the economy for the next six months. It hit -0.1% last month, indicating that things in Australia aren�t as rosy as they seem yet recent developments suggests otherwise. If the leading index shows a huge gain, we might see the AUD hit another set of yearly highs against the USD given how risk drives everything these days…

Kachow! The AUD got blinded by the lightning speed of the USD yesterday, as the dollar rose across the board on concerns coming out of China. The USD outpaced the AUD as it rounded around the European session and eventually closed trading at .8284.

Early this morning, Australia�s leading index was released, posting a 0.9% increase. Still, the AUD remained unchanged upon the release of the report. As long as there are concerns with regards to the sustainability of Chinese growth, I think we may see confidence in the AUD weaken. Remember, China is one of the leading importers of Australian goods � if it appears that their growth cannot be sustained, this would not bode well for the AUD.

Also released early today was the Private Capital Expenditure q/q report. The report indicated companies increased their capital expenditure by 3.3% in the 2nd quarter. A big surprise here, as it was expected that there would be a decline of 4.7%.

Be on the lookout for more news coming from China and the US today. The US Preliminary GDP report is on deck today, so expect some volatility in the markets upon the release.

An unexpected surge in business investments caused the Aussie to zoom up to the 0.8400 mark yesterday. Also reaffirming the strength of the Australian economy was the CB leading index, which hinted at economic expansion in the next few months.

The CB leading index crawled out of negative territory as it posted a 0.9% increase in June. Components of the index show that the largest gains were in building approvals, yield spread, share prices and money supply. This marks the indicator’s fourth increase in the last five months, with six out of seven components posting improvements for the month.

Meanwhile, private capital expenditures went against the forecast of a 4.7% decline and posted a 3.3% uptick instead. Business investment was down by 7.3% in the previous quarter but the recent increase supports the central bank’s view that the Australian economy has already rebounded. Australia has managed to outpace the rest of its G10 colleagues and these strong figures suggest that the nation could be in for another quarter of positive economic growth.

After yesterday’s strong moves, the Aussie could relax this Friday since no economic reports are due from the Land Down Under. Only a few low-impact reports are on tap from the US so it’s unlikely to have any sudden shifts in sentiment for today.

The AUD has been nice beneficiary of risk appetite given its relatively more attractive interest rate. Though, the market has been mixed as of late. Still, it managed to end last week on a slightly higher note. This week will be major for Australia given the high profile releases. See what�s up!

Data on HIA new home sales, and private sector credit will be up today in Australia at 1:00 am GMT. Both accounts are expected to report trivial gains. The AUD may just be range bound today ahead of the RBA�s interest rate decision tomorrow (September 1).

The RBA is set to decide on its interest rate tomorrow. It is expected to leave its rate unchanged at 3.00%. Recently, investors have speculated that Australia will be the first one to hike their rates. Any indication of this in the upcoming RBA statement could take the AUD to new yearly highs versus the USD and JPY.

Australia’s gross domestic product for the second quarter will also be released on September 2. The economy is seen to have grown by 0.6% after already advancing by 0.4% during the previous period. Any expansion in the broad economy could further boost the AUD.

On September 3, Australia�s trade balance in July will be reported. The country�s trade deficit is projected to almost double to �A$0.80 from �A$0.44 billion. Though, we might see a better-than-expected result given the recent developments in the global economy. Nonetheless, any expansion in its deficit could be bearish for the AUD.

Sellers took the AUD lower against the USD early during the overnight Asian session yesterday but the move downwards proved unsustainable as the currency managed to bounce back top when the US session went underway.

Calm before the storm perhaps? Are traders sitting it out on the sidelines ahead of the Reserve Bank of Australia�s interest rate decision this morning at 4:30 am GMT? With the country returning the growth, RBA Governor Glenn Stevens could sing another upbeat tune just like the previous rate decision. The bank would probably keep interest rates steady once again today. If this happens, we might see another round of AUD buying later…

The building approvals report that just came out showed an unexpected rise of 7.7%. Economists only predicted a 3.3% growth. Investors tend to see the report as a leading indicator for economic activity as getting government approval is one of the initial steps in constructing buildings. The more buildings are constructed, the more jobs are made available, which, in turn, puts more money available for spending for consumers. It also stimulates business to business activity.

The Aussie dollar got wiped out in yesterdays surfing… trading session, as surprises on both the local and US fronts rocked AUD trading. The AUDUSD pair seemed poised to test the yearly high at .8279, before it dropped off and ended the day at .8266.

The first surprise came when the Reserve Bank of Australia decided to keep interest rates at 3.00%. It seemed that investors had been expecting a rate hike, seeing as the RBA did not cut rates at the previous meeting. This caused a pour down in AUD trading, as there was a sell off immediately after the release of the report. Seems like RBA Governor Glenn Stevens and his posse still want to remain cautious despite signs of recovery - in the RBA’s Statement, they said that the RBA feels that the present level of monetary policy is appropriate to foster longer term growth and stability.

The next market mover came during the US session, when US equities tumbled down. This caused a run back to risk aversion, which as we all know by now, bodes well for the USD and JPY.

We could see more volatility today, with the GDP q/q report being released at 1:30 am GMT. It is expected that Australia showed growth once again in the 2nd quarter, as expectations are for 0.3% growth. Could this be the spark that lets the AUD rebound after yesterday�s wipe out?

Nice one Australia! High five! The Land Down Under had another round of positive economic growth as its GDP recorded a 0.6% uptick for the second quarter. The AUDUSD jumped by more than 50 pips right after the report and climbed to a high of 0.8374 a few hours later.

The rise in GDP came in better than expected, beating the consensus of a mere 0.3% increase. The second quarter GDP is also a few notches higher than the 0.4% growth in the first quarter of the year. The nation’s strong economic performance for the second quarter increases the possibility of a rate hike before the end of the year. In fact, the RBA might be considering raising their benchmark rate by a quarter percentage point (0.25%) in November. Some analysts even went as far as saying that interest rates will be up by 175 basis points (1.75%) in the next 12 months. Woah!

Components of the GDP show that consumer spending climbed by 0.8% in the second quarter. This implies that the 20 billion AUD in government cash handouts have effectively boosted spending. As the government continues to spend on roads, railways, and schools, Australia’s GDP is expected to expand further in the coming quarters.

Despite the bullish outlook for the Australian economy, the AUDUSD was unable to sustain its rally as it lost steam immediately after reaching the 0.8370 area. Even the AUDJPY didn’t make much of an advancement as it failed to pocket its gains. Price action seemed to tone down as traders anticipate the next set of market-moving reports…

Australia is set to report its trade balance today. This is a pretty high-profile report for this commodity-oriented, export-dependent economy. The trade deficit is expected to widen from 0.44 billion AUD to 0.8 billion AUD. The actual figure is due at 1:30 am GMT. Stay on your toes for the release of the US weekly unemployment claims and ISM non-manufacturing PMI since both could result to sudden shifts in risk sentiment.

The Aussie leaped back strong against the USD and JPY yesterday after tripping face-flat on Tuesday. While it is consolidating for awhile against its two counterparts in the short run, its longer term uptrend remains to be intact.

Australia�s negative trade balance (trade deficit) swelled to �A$1.56 billion, almost triple of its previous deficit of �A$0.54 billion. The account was only expected to widen to �A$0.80 billion. The increase in its deficit was due to a drop in exports and a jump in oil and consumer goods imports. An expansion in a country�s deficit is usually reflects negatively on the economy and currency. However, this is not the case here since Australia�s shortfall indicates that domestic demand has improved, which can be attributed to the government�s stimulus.

The AUD started to ascend following the report.

No economic reports are due today in Australia. The AUD may just look for leads from other countries, especially the US, regarding its short term currency movement. The AUD may benefit if the US shows improving labor conditions.

The AUD, like other commodity-based currencies, had a stellar performance last Friday. Actually, that might be an understatement given how the AUDUSD pair managed to hit another set of yearly highs! It closed the trading week 0.8509, almost 100 pips from its week open at 0.8415.

Given Australia�s empty economic calendar that day, the most likely cause of the move upwards was increased appetite coming from better-than-expected non-farm employment change report. This, coupled with yield advantage (3% vs. 0.25%), gave investors a sufficient reason to buy up the AUDUSD pair.

Looking ahead, Australia�s figures on unemployment will be on focus this week. A total of 14,700 jobs probably have been lost in August but given how other countries have actually added jobs, we might see an unexpected positive surprise. In addition, the July�s figures showed 32,200 jobs were added, completely opposite the -18,800 forecast. If the employment report does print optimistic results, we might see another run in risk appetite. Let�s see what the report brings this Thursday!

Boing! Looks like the AUD had a pair of Nikes on, as the pair jumped high to set its yearly record. After closing last week with at a yearly high, the pair pushed slightly higher yesterday, touching a high of .8578 before closing at .8560. Is there no stopping the AUD?

It seems that the AUD benefited from a report that showed that job advertisements rose by 4.1% in the past month. This was the largest rise in job ads since December 2007. When job ads increase, it is a sign that more companies have openings and that they want hire. Naturally, the labor market would take this as encouraging news.

Early this morning, the NAB Business Confidence report will be released at 1:30 am GMT. The index, which has been indicating improving economic conditions the past few months, had a score of 10 in its last reading. Given that Australia has done relatively well as of late (even posting 0.6% growth in the last quarter), I wouldn’t be surprised if we see another uptick in the index.

Tomorrow, we could see some added volatility in the Asian session, as the Westpac Consumer Sentiment, Home Loans m/m and Retail Sales m/m reports are all scheduled for release at 1:30 am GMT. With sales and home loans expected to show some improvements, could we see the AUD buoyed further?

Up, up, and away! Taking advantage of dollar weakness, strong economic data, and the rise in gold prices, the AUDUSD soared to its yearly high of 0.8658. The outlook for the Australian economy has been bullish as ever after a reported improvement in business confidence.

Business confidence, as reported by National Australia Bank, climbed from 10 to 18 in August. This is the indicator’s highest level in six years, increasing pressure for the RBA to hike rates as the economy shows more signs of rebounding. Components of the indicator show that all sectors included in the survey reported improved business confidence with manufacturing posting the highest level of optimism among the sectors.

Another factor that boosted the AUD yesterday was the surge in gold prices. Gold reached a whopping 1000 USD per ounce as anti-dollar sentiment loomed over the markets. USD weakness was partly a result of the UN’s call to reduce the role of the USD as the primary currency for global trade.

Looking ahead, we have Westpac consumer sentiment index at 1:00 am GMT today. The index rose by 3.7% in August and the recent strength in Australian fundamentals hint at another improvement for September. Also due today are data on home loans and retail sales - both high-impact reports. It seems like nothing can stop the raging Aussie bulls and an uptick in both home loans and retail sales would reinforce the positive outlook for their economy. The consensus is a 1.5% decline in home loans and a 0.6% increase in retail sales. The actual figures are due 1:30 am GMT.

The Aussie has hit new yearly highs last Monday and Tuesday against the JPY and the USD. However, it started to pull back this Wednesday and has been consolidating since. Is it poised for another breakout up top? Or is a larger correction in line?

Consumers� smiles in Australia turned brighter as indicated in the Westpac consumer sentiment in September. The account rose again by 5.2% 119.3 points after already advancing by 3.7% in the previous period. 119.3 is the index�s highest level Since July 2007. Rising optimism benefits the economy since consumers would tend to spend more given a positive outlook. The latest reading also adds pressure RBA Governor Glenn Stevens to raise the bank�s rates from its current level.

That pressure was somewhat eased with an unexpected drop in the Australian home loans and retail sales in July. Home loans slipped by -2.0% after a gaining 0.4% in June. The consensus was only for a 1.5% fall. Retail sales continued to narrow as it fell by 1.0% against expectations for a 0.6% increase. The account slid by 0.8% in the previous period.

The AUD lost a little bit of headway following the dismal results.

Earlier today, Australia�s employment change and unemployment rate were released. Australia�s unemployment rate in August remained the same at 5.8% with firms slashing about 27,100 jobs after they hired about 33,600 in July. The median forecast was only for a 14,300 lost jobs. Market participants see further job losses in the future as the government�s spending start to lessen.

The AUD slipped following the report.

No other releases are due in Australia today. In the US, trade balance and unemployment claims are on tap. Positive results would be beneficial for higher yielding assets like the AUD.

The jobless report took the AUDUSD southwards early morning yesterday but the pair was able to gain traction as the day went by. It opened the Asian trading session at 0.8615, fell as low as 0.8546, before bouncing up and closing at 0.8638 late in the US afternoon session.

The U-shaped price action could be attributed mostly from the not-so-rosy figures on Australia�s jobless report for August. The unemployment rate, which was predicted to hit 5.9%, was unchanged at 5.8%. Even if this was the case, the number of lost jobs for the month was reported to be 33,600, much higher than the 14,300 forecast.

The resiliency of the Aussie seems to root from yield advantage and the RBA�s stance towards rate hikes. With the Australia posting positive GDP, the consensus is the RBA will be one of the first central banks to increase rates. Australia�s interest rate is already at 3%, relatively high compared to its western counterparts.

Australia�s economic slate is clean today but there is still the possibility to see some volatility spikes here and there as traders close shop for the weekend.

Slow day for the AUDUSD on Friday, as the pair traded within a tight range of less than 70 pips. With no news coming out, I guess we saw traders take off early and hit the waves for the weekend. The pair tested a new yearly high in intraday trading but ultimately closed a couple of pips lower for the day at .8627.

Over the weekend, Treasurer Wayne Swan said that he expects unemployment to continue rising. You all know what this means… this probably means that the RBA won�t be raising rates anytime soon. According to Swan, raising rates and withdrawing other stimulus plans would undermine recovery and could lead to further job losses. It seems that even Australia � who avoided a technical recession � still remains cautious and are wary that things could get worse.

This week, not much will be released from the Land Down Under. At 1:30 am GMT tomorrow, the minutes of the last Monetary Policy Meeting and housing starts data will be available. I suspect that the minutes will reveal that MPC members are still cautious, and like Mr. Swan, are probably concerned about labor conditions. Housing starts, on the other hand, are expected to have risen by 2.2% in the past quarter. Let�s see if the market will take this an encouraging news and buy up the AUD.

Nothing much for the rest of the week aside from the RBA Annual Report and Monthly Bulletin. I�d watch out for developments in gold trading � last Friday, gold futures traded above $1,000 per ounce. With the AUD being a commodity currency, I�d like to see if this �gold rush� can continue and with it, carry the AUD to newer highs.

Range-bound action was the theme for the AUDUSD movement in the past few days as it struggles to keep its head above the 0.8600 mark. The Aussie has paused from making further headway as it gears up for the release of the RBA monetary policy meeting minutes today.

Will the AUD resume its rally after the minutes from the RBA monetary policy meeting are released at 1:30 pm GMT today? Hawkish comments from RBA officials and talks about future rate hikes could give the AUDUSD enough momentum to break out of its current range. Data on housing starts could also provide a boost for the AUD, especially if the actual figure beats the consensus of a 2.1% increase for the quarter.

After a very tentative start, it was all �go� for the Aussie right when the US session opened yesterday. As of the moment, the AUDUSD is once again approaching its yearly high that it set last week. The question now is� Does it have enough juice to blow past it?

Yesterday, the RBA released the accounts of their September 1 meeting. Based on the report, the RBA was looking into how they will balance Australia�s medium term inflation with supporting the economy�s recovery given the bank�s record-low rate. According to them, it is still too early to be sure that the global economy is really on its path to recovery. The bank previously left its rate unchanged at 3% in an effort to sustain the country�s economic activity.

Meanwhile, Australia�s housing starts for the second quarter unexpectedly fell by 3.7% to 30,411 units after already lagging behind by 2.1% in the previous period. The consensus was for a 2.1% advance.

The AUD fell following the reports.

Earlier today, Australia�s Westpac leading index in July was published. The figure rose by 1.1% in July after already gaining by 0.7% in June. It measures the growth of a composite index which includes nine (9) different economic barometers of Australia. The composite�s components are related to consumer confidence, housing, stock prices, money supply, and interest rate spreads. It is a tool that indicates the likely shape of the Australian economy�s health three to nine months ahead. A rise in the index points to a probable improvement in the country�s economic activity.

The AUD got some lift from the index�s positive result.

Later, the announcement of CPI figures will caption the US calendar. The headline figure is seen to expand by 0.3% after coming in flat in the month prior. A rise in inflation means rising demand for consumer goods and services. In this current economic environment, any increase in the number would still reflect positively on the economy. Such could then give the �anti-dollars� support.

The Aussie staged another magnificent performance against the Greenback as it made fresh 2009 highs once again yesterday. Is there no force strong enough to stop the Aussie in its tracks?

There�re a lot of reasons propping up the Aussie in the currency markets. For one thing, there�s its yield advantage versus other currency giants. The Reserve Bank Australia�s benchmark interest rates currently stand at 3%, relatively higher than that of the BoJ (0.10%), the Federal Reserve (0.25%) and the ECB (1%).The RBA is even seen as one of the first central banks to hike rates! Secondly, Australia was actually able to escape a technical recession by posting minor growth in its GDP during the early stages of 2009 while Japan, US and the euro zone all went into a recession. If that�s not enough, there�s also the rising value of gold. The Aussie is considered as a �comdoll� because it tends to have a positive correlation with commodity prices.

No major economic reports due today so if you want to gather some clues on where the Aussie is headed, watch out for gold prices!

The Aussie finally took a slight hit yesterday, but not before hitting a new yearly high in intraday trading. The AUDUSD pair touched as high as .8776, before soaring down and closing at .8705. Will the AUD get back to its winning ways today?

Nothing much to write home about, as no high impact reports are scheduled for today. With the economic menu pretty much empty across the board, I’d watch out for gold trading as something that could drive AUD pairs today. Also, with it being a Friday, I’d be wary of some profit taking that may take place.