Fundamental Forecast for the Australian Dollar: Neutral
- Australian jobs data may disappoint, fueling RBA rate cut speculation
- Firm US news-flow may reboot Fed tightening bets, drive risk aversion
- Q1 earnings season compounds risks but Chinese data is a wild card
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The Australian Dollar turned sharply lower against its leading counterparts last week, issuing the largest weekly decline in three months. The way forward may continue to prove challenging as external and domestic news-flow conspires to feed selling pressure.
Employment figures are in focus on the home front, with the economy expected to add a net 20,000 jobs in March after a paltry increase of just 300 workers in the prior month. Australian economic news-flow is deteriorating relative to expectations once again after a brief period of stabilization, warning that analysts are overestimating the economy’s vigor and opening the door for a downside surprise.
Meanwhile, realized outcomes on US data have steadily improved relative to consensus forecasts since early February. This may make for upbeat results when retail sales, CPI and consumer confidence figures cross the wires next week. Such results may feed Fed rate hike bets after minutes from the March FOMC meeting helped refocus investors on incoming fundamentals.
Firming RBA rate cut expectations on the back of soft jobs figures coupled with the likelihood of risk aversion triggered by returning Fed tightening fears bode ill for the Aussie Dollar. The latter theme may be further compounded by the onset of the first-quarter corporate earnings reporting season. Indeed, earnings per share for S&P 500 companies are seen falling 7.9 percent year-on-year.
Chinese event risk represents a wild card. GDP growth is expected to have slowed to 6.7 percent year-on-year in the first quarter from 6.9 percent in the final three months of 2015. A recent string of upside surprises warns that the world’s second-largest economy may be in better shape than markets are anticipating. The Australian unit may find a lifeline if this proves to foreshadow an upside surprise.
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