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Weekly Outlook: Aussie Looks Ahead to Comments from New Central Bank Governor

Friday, 06 October 2006 22:36:19 GMT  |  Kathy Lien, Chief Currency Strategist

The Australian dollar quietly consolidated below the 0.75 level throughout the past week against the US dollar hitting a low of 0.7415 on Friday.  Even though the Aussie’s price action against the dollar has been uninteresting, its wild swings against the Canadian dollar, breakout against the Japanese Yen and strong losses against the Euro and New Zealand dollar have not.   For the most part, Aussie weakness seems to be dominant, but the currency is nearing support against most of the other majors, which suggests that we could see a bounce in the coming week. 

Although the Aussie has been punished significantly on the back of falling gold prices, the country’s decent economic fundamentals could help to limit further losses.  In the week ahead, we are looking forward to comments by Glenn Stevens, the Reserve Bank ofAustralia’s new central bank governor.  This is his first speech since the departure of MacFarlane and we do not expect any major shifts from the former deputy governor.  After two interest rate hikes in the span of four months, the main question is whether Stevens will reaffirm MacFarlane’s parting message that interest rates will probably have to be raised again.   With the slide in oil prices, Stevens can be more flexible with tightening policy, but like any new central banker, he will be eager to prove that he is a strong inflation fighter.  This means that he will most likely opt to reiterate MacFarlane’s views that the economy is still doing very well and the next likely policy move is still up instead of down.  In addition to Steven’s speech, we are also expecting housing finance, along with labor market data such as ANZ Job Ads, Employment and Unemployment for the month of September.  Although the housing market will probably cool, the labor market, which is one of the healthiest parts of the economy should continue to remain very strong. 

Last week’s data was mixed, but still suggests that the economy is strong overall.  Retail sales grew by 0.3 percent in the month of August, which was less than the prior month, but more than the market’s forecast.  Income tax cuts and a strong labor market continued to fuel discretionary spending and is expected to continue to do so in the month ahead as well, especially since oil prices fell in the month of September.  The trade deficit also shrank from AUD320 million to AUD208 million in the month of July to the best level in six months.  Both exports and imports increased which is very promising.  The only pieces of Aussie negative news was a drop in the inflation gauge as measured by TD-MI and a larger than expected fall in building approvals.  However the drop in approvals comes after the largest gain in 12 months.

 

Date	Event	EST	GMT	EST	CONSENSUS
Oct-9	ANZ Job Advertisements (SEP)	1:30	21:30		-0.6%
Oct-9	Australian Foreign Reserves (SEP)	6:30	2:30		67.03B
Oct-10	National Australia Bank's Business Survey (SEP)	1:30	21:30
Oct-11	Home Loans (AUG)	4:00	21:30	-1.0%	0.9%
Oct-11	Investment Lending (AUG)	1:30	21:30		-7.2%
Oct-11	RBA Governor Stevens Speaks on the Economy	9:00	5:00
Oct-12	Westpac Consumer Confidence (OCT)	0:30	20:30
Oct-12	Employment Change (SEP)	1:30	21:30	5.0K	23.4K
Oct-12	Unemployment Rate (SEP)	1:30	21:30	4.9%	4.9%

 

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