AUSTRALIAN DOLLAR KEY FORECAST: NEUTRAL
- AUD / USD rallied on strong local data and a weak USD
- Tuesday’s RBA meeting is key for markets looking for signs of contraction
- Goods that give lost messages. WUSD ill direction dominates AUD / USD?
Australian dollar rose during the week as second quarter GDP data beat expectations and trade data showed exports rose more than expected in July. second quarter GDP figure stood at 0.7% quarter-on-quarter, exceeding the expected 0.4%. Trade data showed a surplus of AU $ 12.1 billion in July against A $ 10 billion the market was looking for.
second quarter GDP impression is in the rear view mirror as the impact of the Delta variant of Covid-19 is not included in the data. New South Wales, the most populous state, was blocked in the last week of June. Other states were blocked in July and August, resulting in two-thirds of Australians seeing limited movement.
Trade figures revealed the economy’s dependence on commodity exports. Iron ore alone accounted for AUD 26.6 billion in sales in China in July. Coal and natural gas also contributed significantly, but there was a divergence between iron ore prices and those of coal and natural gas. Iron ore moved significantly lower with China reducing steel production, while natural gas and coal rose as energy demand increased.
With disparate action in commodity prices, Tuesday’s RBA meeting takes on more significance for the Australian dollar. At the monetary policy meeting in July, the board announced that it would reduce the purchase of government bonds from A $ 5 billion to A $ 4 billion a week in September. At the August meeting, the board said that given the changing circumstances around Delta, they would reconsider phasing out at the next meeting.
Although vaccination rates are going well, the situation around Delta infections has worsened with the restrictions in place. RBA has previously said that it expects a significant pickup in economic activity once the lockdown ends later in the year.
RBA has also previously argued that fiscal policy is a better tool for temporary and localized reductions in revenue than monetary policy. This has been interpreted as the RBA’s preference to delay the purchase of bonds sooner rather than later.
uncertainty around AUD / USD is not limited to RBA stocks, as movements in the US dollar occur across all assets. Increasing demand for risky assets may undermine the safe-haven US dollar, and we are seeing new all-time highs in equity markets on many exchanges.
markets’ perception of what the Fed could say and ultimately do, following nonfarm payroll data, suggests that stronger data will be needed to keep the train running. reason the USD will stop weakening will depend on signs that the US economy is dynamic enough for the Fed to take action to reduce stimulus.
AUD / USD, LOW IRON MINERAL, COAL AND NATURAL PI GAS
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Chart C. read on TradingView
– Written by Daniel McCarthy, Strategist for DailyFX.com
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