Australian Dollar Outlook - 7/3/13

Bell FX Currency Outlook: The Australian Dollar has remained reasonably steady overnight following some more US Dollar strength for a variety of reasons.

Australia: In currency markets, the USD strength characterised most of the session, with the AUD falling to around 0.9130. The AUD is trading near 0.9140 this morning, its lowest level since September 2010, continuing its losses after a fall from 0.9220 to 0.9160 after yesterday's RBA decision to keep the cash rate unchanged. The RBA said that despite the 10% fall in the AUD in the past three months, "it remains at a high level" and the RBA is hoping that it will depreciate further. Regular cuts in interest rates have not managed to boost business confidence and activity, so the RBA is looking for a lower currency to boost the outlook for the economy. On the cash rate outlook, we see the economy's underperformance as underwriting another easing, expected later this year unless incoming data, including Q2 CPI, is soft. European equities were weaker but US equities were little changed.

Portuguese Finance Minister Vitor Gaspar and Foreign Minister Paulo Portas resigned overnight, reportedly due to unpopularity with fiscal austerity measures employed, which led to reports suggesting renewed concerns regarding financial uncertainty in the euro zone. WTI oil futures rose around 2% on reports protests in Egypt could impact supplies. Today in Asia the market will focus on the release of Australian trade balance and retail sales (both for May), as well as a speech by RBA Governor Stevens.

Majors: In the United States, New York Fed President and FOMC voter William Dudley reiterated comments made last week that the Fed will continue to support the US economic recovery and that the timeline of tapering of its bond-buying program will depend on incoming economic data. Dudley remains upbeat about US growth in 2014. Meanwhile, US factory orders rose 2.1% m/m May following an upwardly revised 1.3% m/m increase in April. These data tend to lag the ISM manufacturing index which rose in June. Tonight we receive the euro zone PMI services index for May and June ADP employment data and the non-manufacturing ISM survey for the US. The ADP release has been a poor guide to private payrolls for some months, undershooting on average some 30-40k per month (on revised data).

Economic Calendar

03 JULY AU RBA Governor Glenn Stevens Speaks at Economic Society of Australia

AU AIG Performance Index Jun

AU Retail Sales, Trade Balance May

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