The main forecast for the Australian dollar: the bear
- The third week July brings a quieter economic calendar for Australia; DailyFX’s economic calendar has zero high-rated events.
- TThe Citi Economic Surprise Index for Australia, which measures the expiration of data flows, ended week +35.8, slightly lower than last week’s closing level +38.2.
- The IG customer mood indexsuggests that both AUD / JPY and AUD / USD rates have fallen.
A tough week for the Australian dollar
Nothing good happens underneath. Although July usually leads to better performance for Australian dollar, it has not shown. The Australian dollarended the week with its weekly lowest, monthly, and annual lows. And its performance showed: AUD /JPY decreased -1.33%; AUD /USD -1.32%; EUR / AUD added + 0.65%; and GBP / AUD increased by + 0.34%. New closures in the face of already widespread economic data have left the Australian dollar without positive catalysts in the near future.
The Australian economic calendar is quiet
The third week of July brings a quieter economic calendar for Australia; DailyFX’s economic calendar has zero high-rated events. The July RBA minutes, which take place on Tuesday, July 20, are the most important publication of the week. Overall, data trends appear to be weakening than expected: tThe slowed-down Citi Economic Surprise Index for Australia ended the week at + 35.8, slightly lower than last week’s closing level of +38.2.
Absolutely Australian economic data forecasts, see DailyFX economic calendar.
Relatively speaking, the RBA is Dovish
The Reserve Bank of Australia is different from its counterparts, the Federal Reserve is referring to the withdrawal of incentives, and both the Reserve Bank of Canada and the Reserve Bank of New Zealand are taking final steps to reduce asset purchases. However, the RBA has been quite transparent, suggesting that they will maintain stimulus efforts until headline inflation in Australia returns to its + 2-3% target; In 1Q’21 it was only + 1.1% per year.
Australian Reserve Bank interest rate expectations (16 July 2021) (Table 1)
As noted earlier, “market participants do not appear to be convinced that the RBA will make an effort to manage its yield curve to keep the base rate at or below current levels until at least March 2023.” According to the Australian overnight index swaps, the probability of lowering the interest rate by December 2021 is 25%, which has remained the same over the past month.
Australian Dollar Shorts Construction (Figure 2)
Finally, looking at the positioning, according to the CFTC last week’s COT July 13 speculators increased their net short positions in Australian dollars up to 28,788 cattracts compared to 24,870 contracts signed last week. The positioning of the Australian dollar has been net short over the past four weeks and has been short since the week of 25 May.
– Written by Senior Currency Strategist Christopher Vecchio, CFA