Fundamental Forecast for Australian Dollar: Neutral
- Australian Continues to Look at External Factors for Directional Guidance
- US Economic Data, Fed-Speak Calendar at the Forefront for Price Action
- Help Time Key Turning Points for the Australian Dollar with DailyFX SSI
The Australian Dollar continues to look to external catalysts to take top billing over a relatively quiet domestic economic calendar in the week ahead. A potent correlation between AUD/USD and the Australia-US front-end yield spread puts the spotlight on relative monetary policy considerations. Established RBA monetary policy bets face next to no threats from scheduled event risk in the days ahead, putting the onus on the Federal Reserve side of the equation.
Last week, the Fed delivered what was widely received as a hawkish policy announcement. The central bank upgraded its forecasts for the labor market and inflation trends while Fed Chair Janet Yellen alluded to interest rate hikes as soon as 2015. Indeed, investors are now pricing in 38 basis points in effective Fed tightening over the coming 12 months, while the RBA is expected to fall short of even a single rate hike over the same period.
The week ahead brings a host of US economic activity indicators to continue to inform this dynamic. Two separate sets of Consumer Confidence metrics, New and Pending Home Sales figures as well as the Durable Goods Orders report are all on tap. US economic news-flow is finally stabilizing relative to expectations having started to dramatically deteriorate in mid-January, suggesting the soft patch noted in the first part of the year is looking to be increasingly priced in. That opens the door for upside surprises to invariably emerge on the horizon, with any such outcomes helping to further narrow the perceived policy gap and weighing on the Aussie.
A busy docket of Fed speakers may likewise provide clues driving the comparative policy outlook. No less than seven central bank policymakers – three of them members of the rate0setting FOMC committee – are due to cross the wires. Much has been made of Janet Yellen’s hawkish lean in last week’s post-rate decision press conference, with many observers suggesting that allowing for the appearance of a palpable policy lean represented a rookie mistake from the newly-minted Fed chair. With that in mind, rhetoric from some of the bank’s other leading officials that supports Yellen’s remarks may point to a purposeful tone shift rather than an accidental one, bolstering QE “taper” bets and weighing on AUD/USD (and vice versa).