AUSTRALIA DOLLAR FUNDAMENTAL PROGNOST: NEUTRAL
- AUD / USD strong local data and soft back USD
- The RBA meeting on Tuesday is key for markets looking for narrowing signals
- Items that give unanswered messages. Wsick USD direction dominates AUD/ USD?
The Australian dollar moved higher during the week as second-quarter GDP data exceeded expectations and trade data showed that exports increased more than expected in July. GDP in the second quarter was 0.7% qoq, exceeding the forecast of 0.4%. Trade data showed a surplus of AUD 12.1 billion in July 10 billion that the market was looking for.
Second-quarter GDP is printed in the rearview mirror, as the data do not include the impact of the Covid-19 Delta option. New-South Wales, the most populous state, closed in the last week of June. In July and August, more states were closed, resulting in two-thirds of Australians seeing limited movement.
Trade figures showed the economy’s dependence on commodity exports. Iron ore alone accounted for AUD 26.6 billion in sales to China in July. Coal and natural gas also made significant contributions, but there have been differences between iron ore prices and coal and natural gas. Iron ore has fallen sharply as China has reduced its steel production, while natural gas and coal have risen higher due to energy demand.
With various commodity price measures, the RBA meeting on Tuesday will become more important for the Australian dollar. At the July monetary policy meeting, the board announced that they would reduce government bond purchases from AUD 5 billion to AUD 4 billion per week in September. At the August meeting, the board said that, given the changing circumstances surrounding the Delta, they would reconsider the narrowing at the next meeting.
Despite good progress in vaccination rates, the situation around Delta infections has deteriorated and restrictions remain in place. The RBA has previously stated that they expect a significant recovery in economic activity after the end of the year.
The RBA has previously argued that fiscal policy is a better tool for temporary, local revenue cuts than monetary policy. This has been interpreted as meaning that the RBA prefers to buy bonds sooner rather than later.
Uncertainty over AUD / USD is not limited to RBA activities US dollar movements between assets. Rising demand for risk assets could undermine the US dollar linked to asylumand we are seeing stock markets set new all-time highs on many stock exchanges.
Markets’ perceptions of what the Fed can say and ultimately do after the lack of farm payroll data suggest that stronger data is needed to keep the conical train running. Halting the weakening of the USD depends on signs that the US economy is vibrant enough for the Fed to reduce stimulus.
AUD / USD, IRON ORE LOWER, COAL AND NATURAL GAS HIGHER
– Written by Daniel McCarthy, Strategist at DailyFX.com
Use the or comments section below to contact Daniel @DanMcCathyFX Twitter