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Market Looks Past Australia PPI and Updated Budget, Eyes US NFPs

Market Looks Past Australia PPI and Updated Budget, Eyes US NFPs

Jimmy Yang,

THE TAKEAWAY:PPI Slower, correlates with CPI > Government revises budget and projections > May give scope for RBA rate cut > AUD/USD Lower

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The Aussie edged lower against the US Dollar as producers in Australia saw their selling prices grow at a slower rate in the second quarter. The Producer Price Index grew 0.1 percent quarter-over-quarter and 1.2 percent year-over-year compared to the prior 0.3 and 1.6 percent respectively. The indicator measures prices changes in a variety of wholesale goods and services and serves as a gauge for inflation from the producer’s perspective. Naturally, PPI correlates with CPI; these data points may support the Reserve Bank of Australia’s outlook on inflation and provide “scope for further easing.”

The Australian government also released revised economic projections in an updated budget:

Revised

May Estimate

2013-14 Deficit

A$30.1 Billion

A$18 Billion

2013-14 GDP Growth

2.5%

2.75%

Unemployment by July 2014

6.25%

5.75%

These revisions come after a slew of economic data last week and this week that likely point to a slowdown in the economy. To encourage economic growth, the RBA may lower its benchmark rate at its policy meeting next week. Indeed, Credit Suisse’s overnight index swaps have been pricing in market expectations for a high chance for a 25BP cut in the past week. At the time of this writing, the swaps show a 91 percent chance, down from a high of 98. Such a move could reduce the appeal of the Australian Dollar to yield-seeking investors and move AUD/USD lower.

However, US labor market data will round off the week for movement in the pair. Non-Farm Payrolls and unemployment statistics are due later today at 12:30 GMT. After the Federal Reserve virtually maintained the status quo and kept its unemployment threshold for reducing quantitative easing at 6.5 percent on Wednesday, investors will look towards these data to weigh their expectations for Fed Policy. A positive report could fuel investor speculations for FOMC to introduce a reduction in stimulus in the near term. Alternatively, a disappointing outcome could defer such expectations, boosting risk sentiment to support the Aussie.

AUD/USD (5-Minute Chart)

Market_Looks_Past_Australia_PPI_and_Updated_Budget_Eyes_US_NFPs__body_Picture_1.png, Market Looks Past Australia PPI and Updated Budget, Eyes US NFPs

Source: FXCM Marketscope

Jimmy Yang, DailyFX Research Team

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

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