Fundamental Forecast for the Australian Dollar: Neutral
- Australian Dollar Sees Few Hurdles in the Way of Corrective Bounce
- Upbeat US Data May Boost Fed Rate Hike Bets, Cap Aussie Upside
- Find Key Turning Points for the Australian Dollar with DailyFX SSI
The Australian Dollar emerged stronger following last week’s deluge of event risk. A markedly thinner docket in the days ahead offers relatively few stumbling blocks to derail the currency’s momentum, hinting at continued recovery for the time being.
The stars aligned for an Aussie recovery early last week as the RBA delivered its monetary policy announcement. While Glenn Stevens and company maintained a broadly neutral bias, the policy statement accompanying the rate decision was conspicuously altered to remove calls for further currency depreciation which had become ubiquitous in recent years.
Momentum found added fuel as the RBA delivered its monthly Monetary Policy Statement. Officials upgraded their outlook for inflation and stressed that rate cuts from earlier in the year were still working their way into the broader economy, undermining the case for further easing in the near term. July’s jobs data also looked supportive with a strong upside surprise on the headline reading (although the markets seemed dubious of some underlying numbers).
Finally, mildly disappointing payrolls numbers out of the US helped on the external front, undermining the case for a September interest rate hike. This brandished the Aussie’s attraction as a higher-yielding alternative, taking the currency to the highest daily close in two weeks against its US counterpart.
Looking ahead, US news-flow represents the most potent risk for an Australian Dollar recovery. Retail Sales figures as well as the University of Michigan Consumer Confidence gauge are on tap. Realized US economic data outcomes have broadly tended to outperform relative to consensus forecasts since mid-May, opening the door for upbeat surprises that may re-energize Fed tightening bets and weigh on the Aussie.
A handful of Chinese releases is also noteworthy. July’s Retail Sales and Industrial Production numbers are due to cross the wires. As with the US, data flow out of the behemoth East Asian economy has improved in recent months. At minimum, this hints that the probability for particularly dour results that raise concerns about negative spillover to Australia is comparatively low relative to the alternative.