aud fundamentals

Australian Dollar Consolidation Below 2009 Highs May Yield Breakout

Friday, 10 April 2009 20:24:41 GMT  |  Terri Belkas, Currency Strategist

The Australian dollar ended the week as the strongest of the majors, and the currency was especially strong against the euro, Swiss franc, and British pound.

Australian Dollar Consolidation Below 2009 Highs May Yield Breakout

Fundamental Outlook for Australian Dollar: Bearish

- The RBA cut rates by 25bps to 3.00%, going against forecasts by Bloomberg News
- The Australian unemployment spiked to a 6-year high of 5.7%, economy loses 34,700 jobs in March
- Check out our AUD/USD outlook based on technicals, interest rates, and PPP

The Australian dollar ended the week as the strongest of the majors, and the currency was especially strong against the euro, Swiss franc, and British pound. The moves came despite the fact that the Reserve Bank of Australia cut rates by 25 basis points to 3.00 percent on April 7, which was in line with what Credit Suisse overnight index swaps were pricing in but ran counter to the oft-followed estimates published by Bloomberg News. However, the currency was supported by RBA Governor Glenn Stevens’ policy statement, as he suggested that they may pursue a neutral stance going forward since domestic interest rates are now “at very low levels by historical standards” and “there are tentative signs of stabilization in several countries, including China.” The bigger driver of Australian dollar strength, though, was the broad based pickup in investor sentiment that led other “risky” assets to climb, including equities, in the middle of the week.

Risk trends will likely remain the primary driver of commodity currencies like the Australian dollar going forward, especially because there is little in the way of major economic releases this week. Looking at the indicators that will hit the wires, which are generally second- and third-tier in nature, NAB business confidence is anticipated to remain negative for the fifteenth straight month, as declines in global demand for exports along with tight credit conditions hurts sentiment. Likewise, the Westpac leading economic index could remain in the red for the sixth straight month in February. Finally, data is anticipated to show that inflation pressures eased during Q1, as import price growth is likely to fall from a more than 22-year high of 10.8 percent while export prices may slip from an all-time high of 15.9 percent. The news could weigh on the Australian dollar in anticipation of further rate cuts, but if import and export costs fail to ease, the currency could gain.

Looking at AUD/USD from a technical perspective, the pair has been holding below the October 14, 2008, January, and April highs near 0.7230-0.7270, and a failure at these levels would indicate a triple top. However, if risk appetite continues to improve, AUD/USD could break clear above noted resistance to target the 200 SMA at 0.7373.

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