aud fundamentals

Australian Dollar Looks To RBA Rate Decision For Direction

Sunday, 02 November 2008 22:44:19 GMT  |  John Rivera, Currency Analyst

The Australian Dollar would gain over 850 pips as the RBA intervened to prop up the currency. Next week could determine the medium term trend for the currency as retail sales, inflation data and a RBA rate decision are on tap.

Fundamental Outlook for Australian Dollar: Bearish

- Australian Business Confidence slightly improved to -7 from -8 on the back of the 100 bps rate cut by the RBA.
- The Australian Conference Board of Leading Indicators gained 0.4% due to an increase in money supply.
- DEWR Skilled Vacancies fell 3.7% in October, As Opening For Doctors and Lawyers fell.

The Australian Dollar would gain over 850 pips as the RBA intervened to prop up the currency. Also, a return of risk appetite made the high yielding currency attractive to investors that were seeking a greater return. Bullish fundamental data and a stabilizing of commodity prices also helped add support. However, mounting global recession concerns would lead to heavy trading to end the week.

Next week could determine the medium term trend for the currency as retail sales, inflation data and a RBA rate decision are on tap. Although the central bank cut rates by 100 bps last meeting and signaled more to come traders may be a little too optimistic about the aggressiveness of the MPC. Inflation has remained elevated in the country which could give policy makers something to think about. Although we expect the 50 bps that is forecasted by economists the subsequent comments may not be as dovish as markets expect. If the RBA saw a need to defend it currency then they may decide to limit their easing as another measure to provide support to the Australian dollar. The TD inflation reading due before the rate decision may provide more event risk than initially anticipated if prices don’t ease the same degree that we have seen in other countries. Additionally, retail sales are expected to have grown 0.2% which could give hope that the Australian consumer is remaining resilient. The country is coming off of an extended growth period and doesn’t have banking issues similar to the U.S. and Europe. Therefore, Australian economy may be able to weather a global slowdown in the near-term. Ultimately declining demand for raw materials will increase the downside risks and necessitate the RBA to continue easing. A dovish central bank and a the expected decline in employment could eliminate any bullish sentiment that has been building over the past week and send the pair lower. - JR

Visit our recently updated AUD/USD Currency Room for more resources dedicated to the Australian Dollar.

Resources

• free demo account
• forex courses
• open an account
• forex stream
• free webinars