aud fundamentals

Australian Dollar Surges on S&P 500 Strength - Can Rally Last?

Friday, 08 May 2009 22:00:49 GMT  |  David Rodriguez, Quantitative Strategist

The Australian dollar rallied substantially on yet another week of S&P 500 gains, setting fresh 7-month highs against its US namesake on buoyant financial market risk appetite. Benchmark US equity indices have now rallied in seven of the past eight weeks, and forex traders have taken full advantage of renewed market confidence to buy into the high-yielding Aussie.

Australian Dollar Surges on S&P 500 Strength – Can Rally Last?

Fundamental Outlook for Australian Dollar: Bearish

- Reserve Bank of Australia Leaves Rates Unchanged
- Yet officials say Australian Economy Likely to Contract 1.25 Percent
- View our monthly Australian Dollar Exchange Rate Forecast

The Australian dollar rallied substantially on yet another week of S&P 500 gains, setting fresh 7-month highs against its US namesake on buoyant financial market risk appetite. Benchmark US equity indices have now rallied in seven of the past eight weeks, and forex traders have taken full advantage of renewed market confidence to buy into the high-yielding Aussie. A busy week of economic event risk arguably improved broader Australian economic outlook, but Reserve Bank of Australia officials were quick to temper renewed optimism and projected the economy would contract by 1.25 percent through the 12 months ending in June. Australia remains in a position of strength as compared to the majority of major trading counterparts—explaining a good deal of Aussie strength. Yet financial market risk sentiment is equally—if not more—important, and a significant pullback in global equities and commodity markets could easily end the AUD’s winning streak.
 
The Australian economic calendar may accordingly prove less important than risk trends, and Aussie traders will need to keep a close eye on the S&P and other risk barometers. Second-tier economic data is unlikely to force noteworthy volatility for the antipodean currency, but it may nonetheless be worthwhile to track results in two potentially significant confidence reports. Economists will look at upcoming NAB Business Confidence with particular interest. The headline confidence number has improved for two consecutive months but remains in negative territory, but it will be important to see if the current streak can be maintained in the face of sizeable economic headwinds. The following Westpac Consumer Confidence report will likewise shed light on the future of domestic consumption. Recent Retail Sales data showed unexpected strength in consumer spending, but it will be important to watch for a commensurate and potentially lasting bounce in sentiment. Sizeable surprises in either the NAB or Westpac surveys report could shift outlook for domestic business and household spending.  - DR
 

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