AUD Analysis – 7th of April

Jarratt Davis

Special Consultant to the FPA
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Our bias for the Australian dollar is currently weakly bullish in the context of RBA being on hold and CPI, employment and GDP all showing either benign or positive signs for the Australian economy. Short-term sentiment will however be guided by direction in key commodity prices, and to lesser extent risk sentiments. The best buying opportunities for AUD will come when commodities are rising and there is risk appetite in the market.

AUD Analysis

Interest Rate

Official Cash Rate: 2.00%

Last Change: May 6, 2015 (2.25%)

Expected Future Change: No Change

Next release: May 3

Inflation

Inflation Target: 2-3%

Period: 2015

CPI: 1.7% Prior: 1.5%

Trimmed Mean CPI: 2.1% Prior: 2.1%

Next Release: April 27

Employment

Period: February

Employment Change: 300 Expected: 10,000

Unemployment Rate: 5.8% Expected: 6.0%

Next Release: April 14

Growth

Period: 2015

GDP: 3.0% Expected: 2.5%

Next Release: May 31

The Aussie declined several hundred pips in early April, largely due to weakness across the commodity complex. Iron ore fell nearly $10 from highs during late March and early April, after rallying to nearly $61 in early March – its highest level since June 2015. Copper is also down nearly 20c from its mid-March highs. Most importantly, the price of crude also dropped, with WTI down $6.50 from its March 18 high. The move lower in commodities has served to weaken the AUD.

The Reserve Bank of Australia kept rates on hold at 2% on April 5th, as was expected. The statement was largely a reiteration of prior ones. However, the RBA did make clear that they are wary of the appreciating AUD and said that further strength in the currency could complicate the adjustment in the economy that is underway. The Bank left the door open to easing, should the data warrant it. Q1 inflation figures on April 27 will be crucial to guide the next policy decision. Currently, Trimmed Mean CPI is at 2.1% and headline at 1.7%.

Employment for February missed on the headline change with only 300 jobs added vs 10,000 expected. However, nearly 16,000 full-time jobs were added and the unemployment rate dropped to 5.8%, below expected 6.0%.

Gross domestic product for the fourth quarter beat expectations at 0.6% for the quarter, with expectations of 0.5%. Year-on-year growth for 2015 was at a healthy 3.0% versus estimates of 2.5%. The beat on expectations was supportive of the AUD, with solid growth diminishing chances of easing in coming months.


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