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Aussie Dollar Faces Another Volatile Week on RBA, Yellen Speech

Aussie Dollar Faces Another Volatile Week on RBA, Yellen Speech

2016-06-04 02:38:00
Ilya Spivak, Head Strategist, APAC
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Fundamental Forecast for the Australian Dollar: Neutral

Aussie Dollar snaps 5-week losing streak on firm GDP data, US NFP miss

• RBA policy announcement eyed as traders gauge bias over coming months

• Commentary from Fed Chair Yellen to keep FOMC speculation churning

Track short-term AUD/USD trading patterns with our GSI indicator!

The Australian Dollar snapped a five-week losing streak, putting in its largest advance in four months. The move found fuel in domestic and external news-flow. First-quarter GDP figures proved far stronger than expected, pouring cold water on RBA rate cut bets. Then, a deeply disappointing US payrolls print crushed Fed rate hike bets and sent investors scrambling, boosting the Aussie along with other anti-USD alternatives.

The week ahead promises continued volatility as the markets are battered with another round of high-profile event risk. In Australia, all eyes are on the RBA monetary policy announcement. Recently upbeat news-flow has decisively diminished priced-in rate cut expectations. This seems to make sense: rosy data gives the central bank a bit of breathing room to let its latest efforts filter into the broad economy while waiting for macro-prudential measures to cool the housing market, offering more room to ease if necessary.

This is likely to put the spotlight on the policy statement accompanying the rate decision, with traders keen to ascertain if Glenn Stevens and company have settled into an indefinite holding pattern or merely paused for a bit before resuming stimulus expansion. Needless to say, the former is likely to prove supportive for the Australian unit while the latter may somewhat tarnish recent gains and cap upside momentum.

On the global front, the evolution of US policy bets in the wake of May’s abysmal labor-market data is likely to be a central theme. The week begins with a much-anticipated speech from Fed Chair Janet Yellen, with traders keen to hear how she intends to reconcile recently hawkish overtures from central bank officials (herself included) and seemingly uncooperative near-term fundamentals.

Falling back on the long-standing commitment to “data dependency” is likely to be seen as dovish and boost the Aussie. Alternatively, comments suggesting the Fed sees the May number as an anomaly and intends to look through it when deciding whether to hike rates over the next two months – a conceivable outcome considering one-off distortions such as the massive Verizon strike that skewed last month’s payrolls reading – AUD may find itself under pressure along with other anti-USD majors.

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