aud fundamentals

The Australian dollar started the week on a down note as it retraced the gains from the week prior on a record low in business confidence and growing concerns that the global downturn would continue in spite of the efforts of the governments and central banks. Risk appetite started to pick up toward the end of week as the upcoming G-7 holds the potential to deliver a coordinated global response to the current crisis which is needed versus the every man for himself approach to this point. Fundamentally the Australian economy continues to inch closer to a recession as consumer sentiment also fell 4.6% in January, dimming the outlook for domestic growth. Although we saw a slight increase in the number employed, the unemployment rate rose to the highest level since June 2006.

The upcoming release of the RBA’s minutes from their last meeting could present event risk for the Australian dollar as it may give some insight into future monetary policy. The MPC lowered the official target rate to a 45 year low of 3.25% at its last meeting as it attempts to prevent the economy from entering a recession. Last week the central bank cut its growth forecast for 2009 to 0.25% before improving to 1.25% in 2010, but warned that the risks remain that it could contract like other major countries. The 0.6500 price level has held firm as support and may provide a strong base for a move higher, a possible test of the 50-Day SMA 0.6739 seems reasonable with psychological resistance at 0.7000 the next barrier. However,  if the G-7 and the “Obama Stimulus” plan fails to inspire traders, we could see a return of risk aversion the Australian dollar trade lower. -JR