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Australian Dollar Direction Hinges on US Nonfarm Payrolls, S&P 500

Australian Dollar Direction Hinges on US Nonfarm Payrolls, S&P 500

2011-02-26 02:00:00
David Rodriguez, Head of Product
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Australian_Dollar_Direction_Hinges_on_US_Nonfarm_Payrolls_SPXs_500_body_Picture_1.png, Australian Dollar Direction Hinges on US Nonfarm Payrolls, S&P 500

Australian Dollar Direction Hinges on US Nonfarm Payrolls, S&P 500

Fundamental Forecast for Australian Dollar: Neutral

The Australian Dollar finished the week almost squarely unchanged against its US namesake, falling on sharp US S&P 500 declines only to recover into later-week trade. Economic data was broadly supportive for the antipodean currency; Australian business investment hit a record-high through Q4, 2010. The result was enough to spark a short-term rally in the AUDUSD, but markets now looked to a packed week of economic event risk to drive moves in the antipodean currency pair. Given that the Australian Dollar nears important peaks against the US Dollar, it could very well be a make-or-break week for the impressive uptrend.

Friday’s US Nonfarm Payrolls report headlines a busy week across forex markets, and the usual wave of pre-NFP data releases will shape expectations leading up to the event. The Reserve Bank of Australia may likewise drive volatility through their scheduled interest rate announcement on Tuesday at 03:30 GMT. Overnight Index Swaps price in a zero percent chance of any change in interest rates, but it may still be important to monitor the post-announcement statement from RBA Governor Glenn Stevens. Those same OIS show that overall interest rate hike expectations continue to trend lower for the Australian central bank; 12-month interest rate expectations remain near their lowest levels since the second half of 2010. Though the RBA has stated concerns that domestic inflation may hit the top end of their target through 2012, recent rhetoric suggests no sense of urgency in further monetary policy tightening. Any hawkish shifts could further fuel Australian Dollar gains.

Some lower-tier Australian economic data may spark shorter-term volatility, but broader financial market risk sentiment will likely remain the most significant driver of AUD price action. A recently sharp turn lower in the benchmark S&P 500 suggests bulls may be taking profits following substantial gains. The key question is whether broader geopolitical turmoil may be enough to force a more sustained shift in ‘risk’ and a commensurate correction in financial market sentiment. An Australian Dollar above parity is hardly a sign of market troubles, and indeed we will have to see a much larger turn lower before claiming that the AUDUSD is in danger of a sharp correction. We will watch key event risk with interest—paying especially close attention to reactions out of key risk barometers at key technical levels. - DR

http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/daily_fundamentals/2011/02/25/Forex_Dollar_on_the_Verge_of_Collapse_Despite_the_Most_Substantial_Risk_Aversion_Move_in_Three_Months.html

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