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| WEEKLY WEEKLY OUTLOOK: AUSSIE LOOKS TO KEEP FIRE BURNING BY DAILY FX |
| WEEKLY OUTLOOK: AUSSIE LOOKS TO KEEP FIRE BURNING |
The Australian dollar spent most of the previous two weeks in a range that measured only 85-points wide. However, it only took one surprisingly optimistic employment report to shake the pair out of its lull. On a single session, 100-point rally, the AUDUSD broke out of its 0.7415 – 0.7500 range with authority. Now, trading just above former resistance, the pair looks ahead to news and capital flow triggers to decide whether the move evolves into a false breakout with a destiny below the 0.75-level, or if the pair looks ahead to 0.7600.
While the technical positioning of the AUDUSD is comforting, the fundamentals are not boasting the same assurances. Of the few indicators that are due for release over the coming days, even fewer have proven themselves to be market worthy in the past. The first offering of the batch, doesn’t come until Wednesday; but the read itself has some clout amongst the market savvy. Westpac’s proprietary Leading Index has no consensus attached to it, but expectations for August read are tilted towards moderation. Weaker business and consumer confidence, slowing retail sales growth, and a rate hike that weighed down most other areas of the economy likely held up the indicator used to gauge economic expansion in the coming six to nine months. On the following day, the fairly new report of the central bank’s foreign exchange transactions will likely garner little attention. Since the read is only a few months old, it has yet to provide a substantial basis of relative changes; so sentiment based on historical comparisons is out. Coming quickly, in terms of the economic calendar, Friday’s numbers will likely be the most market moving of the week. New motor vehicle sales are expected to have dropped another month through September, even as cheaper gasoline prices prompt some level of demand. According to a related release, auto sales dropped over the same month led by a decline in light truck sales. Though Australian’s were relieved of some of the immediate pains of dear gas pump receipts, the memory is still very near. Furthermore, a rate hike just the month before, and favorable odds for another one in the near future have left many worried that financing a new vehicle would be too expensive. The last two pieces of data for the week coming in the form of third quarter import and export prices. Since the quarterly CPI figure printed 4 percent growth, well beyond the central bank’s 1-3 percent comfort zone, policy officials and markets have been on edge for another inflation read from the government. Since the CPI figure was directly responsible for the most recent rate hike, these indicators will likely dictate the next RBA meeting. Particularly important for domestic inflation will be the import figure, and so far predictions are very soft. The market consensus for the read sees a 1.0 percent contraction in the three months through September, following 2.3 percent growth in the previous quarter. Such lowball expectations arise largely from the energy bill. After topping out at a record high in July, crude oil prices slipped dramatically as time progressed. If the contraction is greater than expected, expect to see expectations of another rate hike in the next two quarters to drop dramatically.
Though the coming days are stocked with a few indicators, the previous week’s calendar was consistent filled with market moving release. Starting the calendar off immediately Monday morning in Australia was the AiG index of construction activity for September. With the help of an active mining and housing sector, overall construction activity actually hit a three-month high. A little later that day, job advertisements, measured by ANZ, were used as an imprecise forecast of the government employment due for release later that month. Advertisements in major newspapers fell 0.2 percent in September, the forth consecutive monthly drop, suggesting fewer employees were needed to fill existing positions. With that in mind, and forecasts for the employment change revised appropriately, the market moved on to sentiment reads. Tuesday’s business confidence survey from National Australia Bank reported executives’ outlooks were unchanged at eight month lows in September. The pessimistic slant from the group came on the part of reduced demand for a number of key export commodities as well as the carried over effects of the previous month’s rate hike. Australian citizens on the other hand, were more optimistic for October. Rising 3.9 percent, components of economic outlooks, expectations, and plans to purchase major household items all rose – although at a much reduced pace from the month before. Thursday’s data capped off the week early, but did so with a bang. New RBA Governor Glenn Stevens took the time to make remarks on the economy, which were heavily colored in hawkish rhetoric. Later, an index of inflation expectations was issued, though it was too recent to include the effects of Steven’s fresh remarks. According to the release, consumers expected inflation to persist, but at a slower pace of 3.4 percent in the coming six months. This was a big reduction in comparison to August’s median 4.2 percent, and a glaring contradiction to rate hawks. Any bearish sentiment this might have produced in the economy however was quickly alleviated though as the September employment data quickly lit the fire under bulls. Expected to take on a net 5,000 new employees, Aussie firms in fact hired 31,400, which was enough to keep the jobless rate at a 30-year, 4.8 percent. The fourth month where more than 20,000 people found jobs, the employment data was enough to overshadow weakening confidence and suggest the RBA would have a wide enough scope to raise rates before the year was out in order to control the consumer spending that would follow.
Written by John Kicklighter, Junior Currency Analyst
http://www.dailyfx.com
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