Australian Dollar Outlook 08/02/2011
Australia: The risk trade was off the table as the manufacturing data fuelled concerns that the US economy still has a long way to go towards some form of recovery. The ISM survey showed that manufacturing activity slowed to 50.9 for the month of July; down from 55.3 in June and much weaker than the expected result of 54.5.
[Kick off your trading day with our newsletter]
This is the survey’s lowest reading since July 2009. This is very worrying for the US economy, especially following the poor second quarter GDP data out on Friday, and leaves economists unsure of where the growth in the region will come from.
Today in our local region, the RBA will meet for its monthly interest rate decision. Opinions are mixed as to whether the RBA will pull the
trigger and increase the cash rate to 5%. Some banking institutions believe that last week’s higher than expected inflation result will force their hand and see and interest rate hike; while others are hopefully that they will hold off and allow the areas of the economy that are not directly affected by the mining boom (mainly the retail sector) time to gain some traction.
In past statements the RBA have mentioned that inflation is a risk, and something that they need to keep on top; but concerns over the global
economy has also been noted, and with an agreement yet to be reached in the US in regards to the debt ceiling, it could be reason to hold off once again. Should the RBA increase rates, then we could see the AUD push back through USD1.1000 and head towards the post float high.
Majors: The strength is the USD overnight, and the movement back towards it as a safe haven trade, was in stark contrast to what we have
seen in recent weeks. With an agreement on the debt ceiling all but signed off, it may indicate that investors have more confidence in their local economy and in turn, again see the USD as a safe-haven asset.
Late in the offshore session House Majority Leader Eric Cantor said that ‘the House will have enough votes to approve the plan for the US debt ceiling’. The EUR/USD fell sharply on Monday after the 11th hour deal on the US debt ceiling boosted the USD and shifted the attention back to the eurozone festering debt issues. The recent US issues have taken the spotlight off Europe recently, but the action last night shows that the EU have fallen short in their efforts to create certainty about the Greece debt issues.
Economic Calendar
AU RBA Interest Rate Decision
AU Building Approvals JUN
EU Euro-zone PPI JUN
US Personal Income / Spending JUN
More from IBT Markets:
Subscribe to get this delivered to your inbox daily
Follow us on Facebook.
Follow us on Twitter.