Australian Dollar Looks to RBA, Employment Data for Direction

Upcoming Trade Balance data, the Reserve Bank of Australia Cash Target Decision, and Employment Change results could force sharp short-term moves across AUD pairs. Markets very widely expect that the RBA will leave rates unchanged at their upcoming announcement, but it will be important to monitor any shifts in rhetoric and economic forecasts from the central bank. According to Overnight Index Swaps, interest rate traders expect the RBA to leave rates almost exactly unchanged in the coming 12 months. Said forecasts represent a fairly significant shift from earlier calls for rate hikes. It serves to note that rate forecasts for other major currencies have likewise been downgraded through recent market volatility. Yet it is undeniable that the Australian Dollar has shown greater historical sensitivity to yields and any shifts in yield forecasts could have an adverse effect on the AUDUSD. Watch for any important developments in upcoming RBA rhetoric and officials’ stance on growth and inflation.

To that same effect, it may be important to watch for any surprises out of the late-week Australian Employment Change result. Forecasts call for a modest net gain in jobs through the month of June—consistent with steady labor market improvement. Consensus of a 15k print would do little to alter growth or interest rate forecasts, and it may take a sizeable surprise to force significant AUD reactions. Recent momentum leaves Australian Dollar risks to the downside, but recent volatility makes it obvious that markets can and do change directions in a hurry. Key economic data releases may make it an eventful week of AUD trade. - DR