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Australian Dollar Looks to Greece News, US Jobs Data for Direction

Australian Dollar Looks to Greece News, US Jobs Data for Direction

Ilya Spivak, Head Strategist, APAC
Australian Dollar Looks to Greece News, US Jobs Data for Direction

Australian Dollar Looks to Greece News, US Jobs Data for Direction

Fundamental Forecast for the Australian Dollar: Neutral

  • Australian Dollar Looking to Risk Appetite Trends for Direction Cues
  • Greek Debt Negotiation Outcome, US Jobs Report to Guide Sentiment
  • Find Key Inflection Points for the Australian Dollar with DailyFX SSI

Another relatively quiet week on the domestic data front is likely to see the Australian Dollar looking to external forces for direction cues. Two themes continue to dominate the macro landscape: the ongoing negotiations between Greece and its EU/IMF/ECB creditors as well as speculation about the likely timeline for the first post-QE Fed interest rate hike. Developments on either front may trigger volatility in sentiment trends that stir activity in the risk-geared currency.

On the Greek front, the tone will be set by the outcome of another emergency Eurogroup meeting over the weekend. Failure to overcome the impasse may lead to default and push Greece out of the Eurozone, triggering as-yet unknown consequences. Signs of progress before June’s €1.6 billion IMF repayment comes due and the bailout program expires mid-week may boost sentiment as uncertainty risk unwinds, sending the Aussie higher. A breakdown without further room to maneuver stands to yield the opposite result.

Turning to the US, traders interpreted June’s FOMC announcement as broadly dovish. The main takeaway seemed to be that officials’ projected rate hike path over the coming years has flattened compared with their March assessment. A critical caveat seemed to pass below the radar however: Chair Janet Yellen and company continued to call for two rate hikes in 2015.

This narrative is remarkably similar to that of 2014. Then too, investors expected the FOMC to delay or slow the pace of “tapering” QE asset purchases following a disappointing start to the year. The central bank maintained that the slowdown was transitory and delivered the end of QE on schedule however. Policymakers’ response to this year’s hiccup has been nearly identical. This makes it plausible that the Fed will start to hike rates as was intended prior to the first-quarter misstep, mirroring 2014.

Early-2015 Fed commentary hinted at tightening around mid-year. This means that if the parallel with 2014 holds, a hike may come at the July FOMC meeting. The Fed’s call for both a gradual approach as well as two rate increases makes this seem yet more likely. With only four meetings left this year, the central bank would need to begin normalization in July if it hopes to space things out and hike again in October. That stands in stark contrast with a priced-in outlook seeing a single rate increase late in the fourth quarter.

The week ahead will bring ample news-flow that may begin to bridge this gap. US home sales, consumer confidence and manufacturing activity data will lead the way into the much-anticipated Employment report. Economists’ forecasts call for a 227,000 nonfarm payrolls gain in June to mark a slight slowdown from the 280,000 increase recorded in the prior month. US news-flow has been improving relative to expectations since mid-May however, opening the door for an upside surprise. That may trigger a forward shift in Fed rate hike bets, triggering risk aversion and weighing on the Aussie.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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