aud fundamentals

 

Fundamental Outlook for Australian Dollar: Bearish

-    Australian Retail Sales better than expected, but lasting recovery unlikely
-    Aussie Trade Balance Surplus halves – what gives?
-    Australian Dollar sees selling opportunity on candlestick formations

The Australian Dollar got an unexpected boost from a surprisingly strong consumer spending report, but limited follow-through suggests few expect domestic fundamentals will continue to improve through the foreseeable future. Domestic Retail Sales showed impressive strength through the month of November, and many expect that aggressive fiscal stimulus packages announced in December will continue to support consumption. Yet analyst likewise cited fast-falling utility and fuel prices as a major driver of retail gains—leaving comparatively little hope for sustained improvement. Elsewhere, Australian Trade Balance numbers were substantially worse than expected; sharp drops in metal ore exports and comparatively stable imports halved the trade surplus. A fast deterioration in global economic conditions poses great risks to demand for Australian exports. As demand for metal and other key industrial commodities falls, Australian export industries—and by extension the domestic currency—are likely to feel the effects.

Overall outlook for Australian economic fundamentals and the domestic currency remains bearish, but the coming week’s key employment change report could force a near-term shift in sentiment. Median analysts forecasts for the report unsurprisingly call for further pullbacks in employment, but surprises could add legitimacy to recently surprising Retail Sales figures. Otherwise, traders will continue to track movements in global risk sentiment. As one of the highest-yielding currencies of the G10, the Australian Dollar remains susceptible to carry trade unwinds. As such, the AUD remains especially vulnerable to the risk-friendly Japanese Yen. Watch major equity indices to gauge shifts in risk sentiment—especially as it relates to similar moves in currency markets.   - DR