Australian Dollar Poised to Test 2009 High on Interest Rate Outlook

Nevertheless, the economic docket for the following week could weigh on the exchange rate as market participants anticipate home loans to weaken another 0.5% in November after contracting 1.4% in the previous month, and conditions may get worse over the coming months as the government stimulus tapers-off while the RBA looks to raise borrowing costs further. In addition, the labor report due out on Wednesday is likely to spark increased volatility in the Australian dollar exchange rates as investors expect employment to increase 10.0K in December after rising 31.2K in the previous month, while the annual rate of unemployment is projected to push back to 5.8% from 5.7% in November as discouraged workers return to the labor force. As policy makers hold an improved outlook for the region and see the economy entering a “new upswing” that is expected to drive growth over the next several years, the central bank may turn increasingly hawkish as growth and inflation accelerate, and may raise borrowing costs throughout the first-half of the year as the board seeks to fulfill its dual mandate to ensure price stability while promoting full-employment. Meanwhile, as risk trends continue to dictate price action in the foreign exchange market, a rise in risk appetite should continue to drive the AUD/USD higher as the greenback remains the most popular funding-currency next to the Japanese Yen. - DS