Australian Dollar Outlook - 18 July 2014

Bell FX Currency Outlook: Amid the geopolitical developments the AUD held its ground near 0.9380 after the Malaysian Airlines news hit the screens, but late in the US session the AUD lost ground and is now nearer 0.9340.

Australia: The quarterly NAB business survey gave an update on firms' capital expenditure intentions. The survey showed that capital expenditure
intentions improved modestly in Q2 and are continuing to point to an improvement in non-mining business investment. Businesses also reported that it was more difficult to find labour in Q2 for the second consecutive quarter.

Also in Australia yesterday, the carbon tax was repealed after the Senate voted 39-32 to pass the carbon tax repeal bills.

The asset recycling fund bill was also passed by the Senate yesterday but with substantial amendments affecting the funding sources and
procedures for approving the state infrastructure projects that receive the Commonwealth's 15% contribution.

The amendments mean the Commonwealth government would not be able to use the AUD3.5bn Education Investment Fund to fund the policy. The amendments mean each privatisation and reinvestment decision could be disallowed by the House or Representatives or the Senate. Further, each project over AUD100m would have to be assessed by Infrastructure Australia and a cost benefit analysis published. The bill will now go back to the House of Representatives where the amendments are unlikely to be accepted by the Government.

Majors: Risk aversion dominated as the tragic news of a commercial plane crash and a ground offensive in Gaza surfaced. Stocks were lower, bond yields declined and in FX carry was sold off.

Emerging markets were the epicentre of the selling but the AUD and NZD also closed weaker than expected. With little else for the market to focus on these moves are likely to extend through the Asian session today.

Overall, the events should remind investors that the low volatility in financial markets is not representative of the global environment. US economic data releases were mixed overnight. The July Philadelphia Fed survey was very positive, with the headline index rising to +23.9 - its highest level since March 2011 - from +17.8 in June (mkt: +16). The report's detail was also positive, with large rises in new orders (+34.2 from +16.8) and deliveries (+34.2 from +15.5), and the employment index rose slightly to +12.2 from +11.9. Initial jobless claims were a touch better than expected at 302k for last week (mkt: 310k, last: 305k), suggesting the labour market has continued to strengthen. In contrast, housing starts fell 9.3% m/m in June to an 893k annualised pace (mkt: +1.9% m/m, 1020k), following a downwardly revised 7.3% m/m fall in May. Building permits declined 4.2% m/m to a 963k annualised pace (mkt: +3% m/m, 1035k).
Economic Calendar
18 JUL AU NAB Australian Wellbeing Index Q2
CH MNI Business Indicator Jul