aud fundamentals

Australian Dollar Sentiment Tied To RBA Minutes And Risk Appetite

Saturday, 13 December 2008 01:49:46 GMT  |  John Rivera, Currency Analyst

The Australian dollar started the week on a positive note when consumer confidence unexpectedly rose 7.5%. The bullish momentum would continue throughout the week sending the comm.-dollar to as high as 0.6800 before the failure of the U.S. auto bailout plan sparked risk aversion and unwinding of the carry trade. 

Australian Dollar Sentiment Tied To RBA Minutes And Risk Appetite

Fundamental Outlook for Australian Dollar: Bearish

- NAB Business Confidence Falls To -30 From -29 A New Record Low, As Recession Looms
- Westpac Consumer Confidence Unexpectedly Jumps 7.5%
- Australian Unemployment Rate Rose to 4.4% -the highest in a year, As Economy Loses 15,600 jobs.

The Australian dollar started the week on a positive note when consumer confidence unexpectedly rose 7.5%. The bullish momentum would continue throughout the week sending the comm.-dollar to as high as 0.6800 before the failure of the U.S. auto bailout plan sparked risk aversion and unwinding of the carry trade.  Commodities have started to find support as traders are beginning to see the light at the end of the tunnel for the current downturn. The optimistic outlook may be tempered by a failure of the U.S.  auto industry. However, absent that scenario we may see optimism rise as we enter the new year which could add more support for commodities and the Australian dollar. However,  there still remains considerable downside risks which was evident by the loss of 15,600 jobs in November which may not improve anytime soon as business confidence fell to a record low of -30.

Current momentum has seen the local dollar break above the 20-Day SMA and the 0.6800 price level for the first time since November 10. Price action would also see it above the 50-Day SMA for the first time since July which could lead to further gains now that the technical barrier has been broken. The upcoming economic calendar doesn’t present a large amount of event risk with the RBA minutes and the Westpac leading index having the greatest market moving potential. The central bank unexpectedly cut rate by 100 bps at its last policy meeting bringing its benchmark rate down to 4.25% - the lowest level since 2002. Governor Stevens would state following the decision that “There is scope to do more with macroeconomic policy settings if needed, given the strength of the public accounts at the federal level and the outlook for declining inflation” signaling that further easing is possible. The minutes are expected to confirm the RBA’s dovish bias as forecasts are that they will lower rates by another 50 bps at their next policy meeting on February 3,2010. The lower interest rate expectations could weigh on the Australian dollar. However, the main driver of price action will most likely be risk sentiment as the currency, despite recent easing has maintain its status as a high yielder. -JR

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