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Aussie Dollar Eyes Volatile Week on CPI, FOMC and Earnings Flow

Aussie Dollar Eyes Volatile Week on CPI, FOMC and Earnings Flow

2016-04-23 02:05:00
Ilya Spivak, Sr. Currency Strategist
Aussie Dollar Eyes Volatile Week on CPI, FOMC and Earnings FlowAussie Dollar Eyes Volatile Week on CPI, FOMC and Earnings Flow

Fundamental Forecast for the Australian Dollar: Neutral

  • Aussie Dollar may decline if Q1 inflation figures miss estimates
  • Fed policy announcement may trigger risk aversion, hurt Aussie
  • Earnings flow remains a wild-card for sentiment-linked assets

How does the Australian Dollar fit into our 2016 forecast? Find out here!

First-quarter CPI figures headline the economic calendar on the domestic front. Analysts expect the headline year-on-year inflation rate to tick higher to 1.8 percent, the highest since the three months through September 2014.

While a firm print may weigh against RBA rate cut speculation and boost the currency, Australian news-flow has deteriorated relative to consensus forecasts over recent months, hinting at the risk of a downside surprise. This could deliver the opposite effect, boosting bets on stimulus expansion and pushing the Aussie lower.

The monetary policy announcement from the Federal Reserve is in focus on the externally. The rate-setting FOMC committee is widely expected to keep the benchmark lending rate as-is for now. Indeed, futures pricing assigns a mere 2.3 percent probability of a hike.

This puts the spotlight on the statement released following the sit-down. Rhetoric suggesting that threats from global headwinds highlighted at last month’s meeting have yet to materialize and underscoring progress made domestically may be taken to mean tightening is set to resume in June, boosting the US Dollar. It may likewise drive risk aversion, sending the Aussie lower alongside stock prices.

The on-going first-quarter corporate earnings reporting season represents a wildcard. Traders are looking to the reports to gauge the overall global business cycle, which carries implications for broad-based sentiment trends and the risk-linked Aussie.

Thus far, sales and earnings have topped analysts’ estimates by 0.27 and 4.03 percent respectively, with 130 of the companies included in the benchmark S&P 500 index reporting. Lackluster results may sour confidence and punish high-yielding FX alongside share prices, sending the Aussie lower. Needless to say, upbeat outcomes promise to deliver the opposite results.

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