Market Overview by FiboGroup - 2015

The Australian dollar hit a 2 month high yesterday brushing off positive housing and inflation data out of the US.

At 10.19am (GMT) the Aussie dollar was fetching US78.71c after reaching a daily high of US78.39c in yesterday’s trade.

The jump in the local currency was surprising given the latest real estate data from the US which showed the sales of new homes rose at its fastest pace in 7 years.

Inflation rose from a seasonally adjusted 1.6% last month to 1.7% firmly giving the US Federal Reserve food for thought, as the contemplate a move on interest rates.

Inflation figures have been one of the reasons the Fed has been reluctant to lift rates but with this slight increase a move in June may now be back on the table.

All eyes will be on the latest durable goods number from the US due out later today which shows sales of big ticket items to American consumers and may add another notch in the case for an interest rate rise sooner rather than later.

In a note to their clients, analysts from National Australia Bank mentioned that the Fed has taken a wait and see approach in regards to monetary policy which has given some temporary relief to the Australian dollar.

But looking at the big picture, the price of Iron ore, Australia’s biggest export is still on the decline and the Aussie dollar will inevitably drift lower as the year unfolds.

“Ongoing pressure on Australia’s terms of trade led by the relentless decline in iron ore prices argue for still lower AUD levels, but the pressure on AUD/USD from Fed policy tightening are lessened. We maintain our 0.74 end-2015 and 0.73 early 2016 forecasts,” they noted.
The Australian dollar has drifted higher today on the back of disappointing data out of the US yesterday.

At 7.26am (GMT) the Aussie dollar was trading at US78.75c up from US78.45c in yesterdays close.

Orders for durable goods fell to a seasonally adjusted -1.4 per cent in February from the previous month, the Commerce Department reported on Wednesday. Excluding transportation orders the figure fell -0.4 per cent, racking up 5 months of continuous declines.

Although the numbers were disappointing there were some external factors at play like the unusually harsh winter that has appeared for the second consecutive year,

"You hate to blame it on weather for the second year in a row, but it has been the second year where it's been unusually cold," said Michael Feroli, chief U.S. economist at J.P. Morgan Chase.

"First quarter of last year people were skeptical of that, but then we saw in the second and third quarters a pretty strong rebound, which I think was consistent with weather being a drag." he said

Jeremy Cunningham, senior portfolio manager for fixed income investments at AllianceBernstein,,also brushed off the disappointing figures by noting that the US is still on the road to recovery as inflation picks up and the job market gathers momentum,

"We see inflation in the US moving back to the Fed's target of 2 per cent as the economy gathers momentum and, importantly, the labor markets continue to strengthen," he said.

"The Fed place a high level of importance on the relationship between inflation and the US labour market performance." He added

The market is now pricing in a 68% chance that the Reserve Bank of Australia will cut rates again in April by 25 basis points up from 42% the day before the release of the US Feds latest policy meeting which shows the RBA may becoming a little nervous on the US central banks wait and see approach on lifting interest rate
The Australian dollar is sharply lower in today’s trading as iron ore hit a fresh 6 year low leaving some analysts to predict the local economy will enter a recession in 2016

At 10.12am (GMT) the Aussie dollar was trading at US76.82c down from US77.50c at close of trade on Friday.

A slowdown in China’s property market is creating a headache for Australia’s biggest commodity slumping on Friday to around $US53.00 a tonne, more than 60% down from its 2014 high of $US135.27 a tonne.

With weak demand out of China, things are not looking good for the metal with some predicting like ANZ senior commodity analyst Daniel Hynes that we may not have seen the bottom yet,

"It's obviously under a fair bit of pressure with the Chinese steel market still weakening," he said

"To be honest, there aren't any indicators to suggest we've come getting close to the end of that trend." He also added.

Some analysts like to Vimal Gor, BT's Sydney-based head of fixed income predict that Australia has a 50% chance of entering a recession and the RBA will cut rates by 50 basis points to 1.75% leaving the door open to further cuts if necessary.

Australia has been able to avoid a recession for over 20 years due to the mining boom, but with that over the country may be vulnerable,

"I could easily build a scenario where the RBA cuts rates sub 1 per cent," Gor said in an interview on Friday. "There's a decent chance of recession in Australia. We haven't had one for a long time."

"I see us either stopping at 1.75 per cent or stopping at sub 1 per cent," he said. "If it's bad enough to take us below 1.75 per cent, it's bad enough to take us a long way." He added.
The Australian dollar took a tumble today after the latest minutes meeting from the RBA where governor Glen Stevens noted that further interest rate cuts may be needed to stimulate the economy.

At 4.39pm (AEDT) the Australian dollar was trading at 76.90c after trading as high as US78.21c in yesterday’s trade.

The RBA noted that it was keeping an eye on inflation and further monetary easing may be needed in order to bring inflation up to the bank’s target rate

"The board judged that it was appropriate to hold interest rates steady for the time being, while accepting that further easing of policy may be appropriate over the period ahead to foster sustainable growth in demand and inflation consistent with the target. The board would continue to assess the case for such action at forthcoming meetings," the minutes said.

Speaking at a function in New York Mr Stevens retreated this position by noting that a rate reduction has to be considered depending on the state of the economy.

"Interest rates should be quite accommodative and the question of whether they should be reduced further has to be on the table,"

One of the main reasons keeping the RBA back from cutting interest rates is the skyrocketing real estate prices, which MR Stevens sees as an ever growing problem,

“It is hard to escape the conclusion Sydney prices – up by a third since 2012 – look rather exuberant." He noted.
The Australian dollar hit a fresh six-year low today as worries over China and weak commodity prices took its toll on the currency.

After falling as low as US73.98c the Aussie dollar somewhat recovered to finish the day at US74.49c.

Iron ore, Australia’s biggest commodity fell below US$50 a tonne, marking the lowest level since April and bringing the total losses to 16% in just one week.

The Chinese stock market has dropped over 30% recently with some saying it is the beginning of a crash in the Chinese economy.

BK Asset Management managing director Kathy Lien said the Australian dollar was one of the biggest casualties after the problems with China as well as the drop in commodity prices.

“Investors fear that the Greek crisis, sell-off of Chinese equities and decline in commodity prices could lead to a more dramatic slowdown in (Australia’s economy,” she said.

Rabobank head of financial markets research for the Asian Pacific region Micheal Every said that we could see the Aussie dollar drop below US70c by years, end the story in China unfolds and the measures taken by the government backfire.

“Whatever the government is throwing at the market isn’t working. This is a serious problem for Australia, because where China leads, the Australian economy follows,” he said.

“The much larger story is what’s happening in the Chinese stock market,” he added.
The Australian dollar tumbled yesterday as after a hawkish tone form Fed president Janet Yellen and an unexpected cut in interest rates from the Canadian central bank.

The Aussie dollar closed out the day at US73.70c down from US74.50c at Tuesdays close.

Yellen noted that the US economy was on the rise including a strong mobs market, which will keep the US central bank on track to raise rates this year.

BK Asset Management managing director Kathy Lien noted that the bullish testimony buoyed investors and sent them pouring into the US dollar.

"Not only did Yellen confirm that rates will rise this year but it is her view that waiting too long would mean rates would have to rise at a faster pace later," she said. "She prefers to start earlier to allow for a more gradual rate path. As a result every FOMC meeting this year including September is a live meeting at which the central bank could raise rates." she said.

Also hitting the Australian dollar yesterday was the decision by the Royal bank of Canada to cut interest rates from 0.75% down to 0.5% in the wake of falling commodity prices.

The reduction had a knock on affect to the Aussie dollar, as the Australian economy is also heavily reliant on commodities such as Iron ore and copper with fears that the trouble may spread locally.
The Australian dollar hit a new six-year low today weighed down by the fall in commodity prices such as Gold, which fell to US$1081 an ounce, its lowest level since March 2010.

The Aussie dollar reacted sharply falling to US73.27c before receiving some support and climbing back up to US73.80c.

The minutes meeting from the reserve bank of Australia tomorrow will be crucial to the direction of the Australian dollar with the currency likely to face stiff resistance at around the US73.82 mark on the daily chart, which was previously a strong support towards the end of last week.

We expect this resistance level to hold up and the Aussie dollar will find itself heading back towards a new 6 year low.
The Australian dollar pushed higher in overnight trade on the back of a weak US dollar but has since retreated breaking back down through the US74.00c mark to trade at around US 73.70c

After reaching, a high of US74.39c the Aussie dollar succumbed to selling pressure as the news of lower than expected Yearly CPI numbers, which came in at 1.7% against analysts’ expectations of 1.9%. There are now fears that the Australian economy is heading in the footsteps of the Canadian economy and that another interest rate cut is inevitable.

In fact, in the latest minutes meeting from the RBA governor Glen Stevens noted that further interest rates cuts were not off the table and the central bank will wait and see how the situation turns out.

As we wrote yesterday, the Australian dollar has found strong resistance at around the US73.85c level and is now trading well below this mark.

The currency will keep trying to make a run for this level and may even temporarily break it but we believe the bears will win the struggle and the Australian dollar will continue on its way down to a new 6 year low.
The Australian Dollar dropped more than 0.8 percent against the US dollar after the latest jobless numbers sent mixed signals about the state of the economy.

The number of job positions created was 38,500 against analysts’ expectations for a number of 10,000 while the unemployment rate rose to 6.3% up from 6.1% in the previous month.

"Australia's unemployment was slightly higher but overall not a bad set of numbers , the labour force growing was encouraging," said Raiko Shareef, currency strategist at Bank of New Zealand in Wellington.

Although the numbers were slightly on the positive side, most traders feel that data out of Australia will become less relevant in the weeks ahead and attention will focus on the US as the country gears up to lift interest rates for the first time after the onset of the financial crisis.

The Australian dollar may make a run for the US74c mark again but with uncertainty surrounding commodity prices and the Chinese economy, as well as a forecast for a healthy nonfarm payrolls number from the US, we may see the Aussie dollar drift lower and end the week on a sour note.
The Australian dollar is steady in today’s trading a as the market awaits this week’s FOMC meeting from the US Federal reserve.

At 8.42am (GMT) the Aussie dollar was trading at US73.65c, remaining at the same level as Fridays close.

The recent move by the peoples bank of china to devaluate the Yuan has now put into question the timing of an interest rate hike from the Fed with fears a weaker Chinese currency may stoke inflation in the US with consumers and businesses flocking to purchase cheaper imported goods.

OzForex corporate dealer Matt Richardson said the fortunes of the Australian dollar lay with the US Federal Reserve and noted that the Australian dollar was finding support on the back of the uncertainty surrounding the interest rate decision,

"There is still a 50-50 expectation we will see a rate hike in September, but that probability has decreased since Tuesday last week,"Mr Richardson said.

Three of Australia’s biggest banks expect headwinds for the Aussie dollar in the nearest future on the back of higher rates in the US as well as the possibility of another devaluation by the Chinese government.

National Australia Bank expects the Australian dollar to finish the year at US70c before trading at a low of around US68c in the first half of 2016.