aud fundamentals

Weekly Outlook: Aussie Dollar Pounded To Lowest Level This Year

Friday, 10 March 2006 17:06:42 GMT  |  DailyFX Research Team, strategist@dailyfx.com

In one week, the Australian dollar tumbled another 150 pips to lows not seen since December 29th.  While Australia’s economic calendar was positioned to revitalize the country’s currency with inflation, employment and lending data as well as a rate decision from the RBA last week; the results proved to be more of a metaphorical anvil rather than the balloons many Aussie bulls had hoped they would be.  Looking to this week’s register there are indicators with good market moving potential, but their proprietary-style release will make it hard for the market to a momentum behind a move in the event of positive postings.
First out of the gates will be Tuesday’s National Australia Bank’s business sentiment survey for last month.   A similar survey conducted by D&B and released last week may provide insight in the NAB’s figure.  Among the highlights of the D& B report; conditions, capital expenditure and factory gate price expectations through the second quarter all notched higher.  Westpac’s leading consumer confidence measure will control the Aussie on Wednesday.  So far this year, the survey has reported an increasingly more optimistic consumer and March is likely to extend this healthy trend given last week’s strong employment data and abating inflation data.  Finally, Thursday will offer closing round of scheduled economic data.  The RBA’s February bulletin will offer a look into policy officials expectations in the absence of official minutes from the rate decision announcement held on the 17th.  However, the more marketable piece of data comes in the form of consumer inflation expectations for March.  Australians view of inflation could assist Wednesday’s confidence number and offer an intimate look into their willingness to do spend.  The percentage of citizens believing consumer prices would grow within the RBA’s target range grew in February to 23.8 and the dip in TD’s February inflation figure to 2.8%makes another increase in this forward looking indicator more likely.

The sell off in the Aussie last week began within hours of the markets open from the Sunday’s lull.  An initial jump in the morning hours of Monday provided a false sense of optimism for bulls in the AUDUSD.  TD Securities’ February inflation indicator reported year over year price growth at 2.8 percent – once again within the central bank’s tolerance band.  Traders interpreted the news particularly harshly since the RBA’s rate decision was scheduled only days later and killed any probability of a rate hike from policy officials.  The other indicator for the day, job advertisements, only exacerbated the damage done by the inflation measure.  Advertisements for job vacancies in major newspapers fell 2% to a three-year low, while those on posted on the internet rose slightly.  The result of these two posts was an uninterrupted, 165-pip decline from the 0.7483 week high.  Finally, extinguishing the fire ignited by the inflation indicator was the rate decision itself.  As expected, the central bank led by Governor Ian McFarlane decided to keep the overnight lending rate unchanged at 5.50% for the 12 month consecutive month after the economy grew at its slowest pace since 2001 last year.  Following the strong run, the currency pair returned to its regular range-confined disposition.  If any more thought was given towards another sharp sell off later in the week to capitalize on already frayed nerves from Monday and Tuesday’s drop, they evaporated with Thursday’s employment numbers.  Against expectations of an additional 10,000 jobs added to the economy, the Australian Bureau of Statistics announced 25,900 new hires in February that cut the jobless rate to 5.2%.  Finally, wrapping up the week for weary Aussie traders were lending figures that pitched the currency into another sharp drop that left the AUDUSD on a sour note.  Australia’s Bureau of statistics reported home loans in January stalled while investment lending dropped 1.3 percent, suggesting the housing market may detract from economic expansion in the current quarter.  The resultant 65-pip decline bounced the AUDUSD off of the strong rising trend line that begins in July of 2004.  Needless to say, the currency pair teeters on an important level that could amplify data releases this week.

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