Australian Dollar Outlook – 6-20-13

Bell FX Currency Outlook: The AUD has fallen below USD 0.9300 for the first time since September 2010 after US Federal Reserve Chairman Ben Bernanke announced that the US Central Bank's stimulus measures would end in mid-2014.

Australia: The FOMC statement made no direct reference to scaling back on the current pace of Fed balance sheet expansion, but the revisions to the FOMC's central tendency forecast for the unemployment rate put markets on notice as to when the process of 'tapering' could begin. Bernanke made it clear that based on the latest FOMC forecast, the Fed expected to start scaling back monthly bond purchases before the end of the year, and to cease net new bond buying completely by the middle of 2014. Market reaction to the FOMC outcome and press conference has been fierce, with the AUD/USD dropping 2% to below 0.9300. The moves were underway before US Treasury yields broke up out of the prevailing ranges (10-year bonds now trade at 2.35%). The AUD was sold off more than other currencies, as foreign investors brace for more potential Australian interest rate cuts. A weaker local currency is good for exporters, manufacturers and tourism, who have struggled with the high AUD. Given the sharp slide in AUD/USD back through last week's 0.9325 low, forecasts are under review (again) for further downgrades. Ahead of this, exporter buying and institutional hedging is likely to provide significant support and at least slow downside progress. Key event this morning is the China HSBC 'flash' manufacturing PMI, last at 49.2 and expected to show a small rise to 49.4. Anything worse than this risks fresh downward pressure on the AUD and upward pressure on USD/Asia FX rates in general. The RBA's monthly FX transactions data for May are unlikely to show anything other than routine FX activity last month.

Majors: Equities have not taken the Fed's message well, with the major indices closing with losses and between 1.1% and 1.4%. This should recover. The Fed retained its guidance that it does not expect to start raising rates until unemployment hits 6.5% which Bernanke and the majority of FOMC members expect to not occur until early 2015. Growth forecast for 2013 were lowered very slightly but raised for 2014, now put at 3.25%. After the local close today, we will get some significant data out of Europe and the US, notably 'flash' Eurozone PMIs, UK retail sales, US weekly jobless claims, the US preliminary PMI, Philly Fed survey and existing home sales.

Economic Calendar

20 JUNE NZ GDP

CH HSBC Flash Manufacturing PMI

US Initial Jobless Claims

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