Australian one dollar coins
A handful of Australian one dollar coins is shown in Sydney, February 18, 2004. Reuters/Tim Wimborne

Bell FX Currency Outlook: The Australian Dollar weakened on Friday night as recent US economic data remained strong and commodity markets remain weak ahead of the FOMC meeting on our Thursday morning this week.

Australia: The AUD has opened up around the .7200 level as financial markets were jittery ahead of this week’s FOMC meeting where the market still ascribes a 74% chance the US will raise interest rates by 25 bps. Equity markets were lower across the board on Friday although some Chinese data released on the weekend was as expected or slightly better than predicted. A new currency index system measuring CNY against a basket of currencies will be introduced replacing the peg against the USD and speculation grew that the yuan could weaken overall. Industrial production in China for November rose by 6.2% which was higher than the rise of 5.6% in October while fixed asset investment advanced 12.7% yoy and retail sales rose 11% yoy the same as in October. With the oil price sinking close to its 2008 lows and iron ore prices remaining weak the AUD has held up reasonably well. Tomorrow we will see our local RBA minutes and also the Mid-year Economic and Fiscal Outlook for Australia which will include increased current and projected federal budget deficits.

Majors: Retail sales in the US for November came in slightly better than expected rising 0.6% as compared to estimates of a rise of 0.4%. The preliminary consumer sentiment survey for this month from the University of Michigan came in at 91.8 which was just a touch lower than anticipated but better than last month’s reading. The market still believes the US Federal Reserve will raise interest rates at the conclusion of their meeting on our Thursday morning but share markets did not react well to the freezing of redemptions of a junk bond fund managed by Third Avenue Management. Although the FOMC announcement is the focus of this week the future path of interest rates in the US will be watched closely. Throughout 2015 the dot paths of future rate rises has been lowered from 4.25% at its high to a current level of 3.50%. Many anyalysts expect the ceiling will be lowered to 3% later this week. If the US Federal Reserve does not raise rates the reaction against the USD will be severe and we could see it fall in the area of 3%-4%.

Economic Calendar 14 DEC

  • JN Industrial Production MoM/YoY Oct
  • JN Bank of Japan Tankan Survey 4Q
  • EC Industrial Production Oct

BellFx

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