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Australian Dollar Finds a Temporary Lifeline in Seasonal Forces

By , Currency Strategist
07 December 2013 03:10 GMT
Australian_Dollar_Finds_a_Temporary_Lifeline_in_Seasonal_Forces_body_Picture_1.png, Australian Dollar Finds a Temporary Lifeline in Seasonal Forces

Australian Dollar Finds a Temporary Lifeline in Seasonal Forces

Fundamental Forecast for Australian Dollar: Neutral

  • Australian Dollar Touches Three-Month Low But Ends Week Little Changed vs. USD
  • Seasonal Trends Offer a Near-Term Lifeline to Risk Sentiment and the Aussie Alike
  • DailyFXSSI Speculative Sentiment Gauge Argues for Further Aussie Dollar Selling

The Australian Dollar dipped to a three-month low last week. Prices continued to track the widening spread between USD-denominated carry funding costs relative to JPY-based alternatives, suggesting the portfolio rotation we discussed last week remained a driving force. The Aussie erased most of the week’s losses in the final 48 hours of trade however, finishing the week down 0.82 percent against its US namesake having traded down as much as 1.3 percent.

Curiously, the reversal played out against a backdrop of better-than-expected US economic data – most notably, November’s employment figures – which might have been expected to weigh on the Australian unit amid risk aversion triggered by bets on a relatively sooner move “taper” Fed QE asset purchases. As it happened, neither risk aversion nor an Aussie selloff materialized even as the US Labor Department revealed that nonfarm payrolls rose by 203,000 – topping forecasts calling for a 185,000 increase – while the jobless rate unexpectedly fell to a five-year low at 7 percent even as the participation increased.

Seasonal factors likely account for the markets’ counter-intuitive reaction. There remain just two full weeks of trading before activity dries up for the Christmas and New Year holidays celebrated around most of the world’s leading financial centers. That means traders are unlikely to commit to major changes in established trends with so little time to establish follow-through. Furthermore, the proximity of the calendar year turnover makes for a built-in bias in favor of risky assets. Traders that have been holding profitable long-risk positions could delay paying capital gains taxes and reduce the relevant rate to be applied by opting to book profits on positions in 2014.

The week ahead brings a relatively sparse helping of scheduled event risk. On the “taper” speculation side of things, November’s US Retail Sales and PPI figures headline the calendar. Improvements are expected on both fronts, which ought to reinforce the probability of a comparatively sooner move to cut back stimulus from the Federal Reserve. The probability that these releases will succeed where higher-profile data failed in overcoming the aforementioned seasonal forces last week seems small however.

Australian Employment figures are in focus on the domestic front. The economy is expected to have added 10,000 jobs in November, marking the best reading in three months. Such a result may help to underpin near-term support for the Aussie unit, keeping a lid on near-term RBA rate cut expectations and perhaps even allowing the beleaguered currency to manage a corrective bounce into the year-end before Fed stimulus reduction fears renew selling pressure in earnest. - IS

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07 December 2013 03:10 GMT