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Australian Dollar Fundamental Outlook: Mixed
- Australian Dollar closely watching Chinese GDP data as economic activity picks up
- Q3 earnings will be critical to watch. Big names include Tesla, Netflix and Chipotle
- Spiking Covid-19 cases, specter of strict lockdown measures could haunt the Aussie
China Q3 GDP Data, Retail Sales Reports
As Australia’s largest trading partner, Chinese economic data carries a premium and has a proclivity for eliciting notable price action from the cycle-sensitive AUD. Year-on-year Q3 GDP data is anticipated to show a 5.5% print, far higher than the previous 3.2% figure. On the same time frame year-to-date, economists estimate a 0.7% growth report, also far above the prior -1.6% print.
Retail sales are also expected to beat estimates, which if they do could bolster risk appetite – particularly in the region – and push AUD higher along with regional currencies that strongly rely on robust Chinese growth. Monitoring these indicators will be key especially since Australia-Sino relations have deteriorated amid the coronavirus pandemic.
To learn more about regional political risks, be sure to follow me on Twitter @ZabelinDimitri.
Earnings Data on Deck
This week, a cascade of earnings data will be flooding markets and could stir volatility. Some big names include: Lockheed Martin, Coca-Cola, Netflix, UBS, Tesla, Chipotle, IBM, Halliburton and Tesla. Stocks like Netflix and Tesla which have surged amid the pandemic may outperform their peers and add onto their double-digit returns since March.
Coronavirus Cases Souring Sentiment, Growth Prospects
Many countries are experiencing a second wave of Covid-19 infections, with states like France reporting over 30,000 cases in day. Both Paris and London are going to impose new, stricter lockdown measures to curtail the sudden spike. If other governments experience also experience a flare up and impose similar measures, it could derail what is an already-precarious and bumpy recovery.
As a growth-anchored currency, the Aussie would likely especially suffer if the demand for iron ore – a key growth input and Australia’s biggest export – declines. The IMF recently warned that: “While recovery in China has been faster than expected, the global economy’s long ascent back to pre-pandemic levels of activity remains prone to setbacks”.
With the economy weakened by the coronavirus, markets are predisposed to violent bouts of volatility, especially if the source of uncertainty is coming from geopolitics, a notoriously fickle risk. This may help explain why the 2020 US Presidential election and ongoing fiscal stimulus talks are so important: the binary outcome and bipartisan intransience carries significant economic implications.
--- Written by Dimitri Zabelin, Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitri on Twitter
