Australian Dollar Outlook - 06 June 2013
Bell FX Currency Outlook: The Australian Dollar has fallen quite suddenly overnight, dropping to a low of USD0.9512 early this morning, which has it more than two-and-a-half cents since Tuesday.
Australia: Many currency strategists are reviewing AUD forecasts now for a potential downgrade, in light of the previous month's developments. It is becoming increasingly clear that fair value on the currency has come down and the market is starting to anticipate the RBA will need to cut interest rates again before too long.
Commodity prices have softened and offshore developments in the share markets of the US, the UK, France and Germany overnight, in which they recorded heavy losses, has been described by many as "a classic risk-off move".
The USD gained due to its safe-haven status and currencies like the AUD felt the brunt. We may see a relief rally today but it does seem likely to face further downward pressure over the coming days and weeks.
Yesterday, Australian Q1 GDP printed-weaker than expected at 2.5% y/y and the underlying themes were largely as expected, with domestic demand weak again in the quarter and pricing pressures relatively subdued.
Domestic final demand in Q1 was below its level in June 2012, a weak outcome and consistent with soft labour market conditions in Australia.
The major downside surprises were weaker-than-expected household consumption and business investment.
This data and more up to date information are consistent with the RBA's view that the economy is growing at below-trend rates. Volatility remains.
Majors: Tonight the Bank of England and the ECB meet, with no change in policy expected. For the BoE, this will be the last meeting with Mervyn King as Governor with Mark Carney taking over for the July meeting.
The ECB post-meeting press conference with President Draghi could be interesting, as he will probably be questioned over the low inflation, the latest annual number at 1.2% and with the ECB's forecasts probably below their 'near' 2% target ahead.
US layoffs jobless claims numbers for the latest week will relevant to the outlook for the economy and the Fed tapering debate.
There is no doubt that the ADP report has a substantial error margin when compared with non-farm payrolls, the error currently averaging about 67k but the result of 135K was well below the forecast of 165K and puts downside risk on non-farm payrolls employment out on Friday, with the current market forecast now 165K, slightly down from 167K earlier in the week.
ISM Non-Manufacturing Employment fell to 50.1, the lowest in 10 months. The bottom line is that if NFP is indeed weak on Friday, then all the talk of an imminent Fed tapering of QE will have been premature.
The spectre of the Fed maintaining its QE program saw US 10- year yields fall by 6bps overnight.
Economic Calendar
06 JUNE AU Trade Balance
UK BOE Announces Rates
EC ECB Announces Interest Rates