AUD/USD Weekly Outlook: Aussie to Benefit from Steady Short-term Bullish Trend

The Australian calendar has only minor indicators throughout the upcoming week. Monday will bring ANZ job advertisements for July, while on Tuesday the NAB business confidence survey for July is due.

Wednesday will bring the Westpac consumer confidence index for August, which should remain in negative territory. Shortly later, Australian home loans for June are expected to post an improvement to 2.2% month-on-month, up from -1.0% booked previously.

Australia - NAB Business Conditions 8 (prior 12) & Confidence 4 (prior 6) for July

National Australia Bank Monthly Business Survey for July

• Business conditions well above the long-run average
• Sales strong
• Employment index held above average at +4
• Forward orders above long-run average
• Capex above long-run average
  

• "Employment component managed to hold onto the gains seen in June, suggesting ongoing employment growth
• Despite the cacophony of events - including Brexit and the recent Federal election - that have posed a risk to market sentiment in the past month or so, firms are continuing to report positive levels of business confidence"
• "The risks to the outlook going into 2018 are becoming increasingly apparent, as LNG exports flatten off at a high level and the dwelling construction cycle turns down"

• "With inflation forecasts still very low and the RBA showing its hand as a committed 'inflation targeter', it is seemingly less worried than we thought about using up some of its valuable remaining monetary policy ammunition, the case for further cuts from the RBA appears to be mounting.
• "Backing up the case for additional monetary policy support, in its recent Statement on Monetary Policy the RBA re-emphasised that house price risks had become less of a constraint on the decision to cut rates."
• "This will include two more 25-basis-point cuts in May and August 2017 - to a new low of 1 per cent - which should be enough to stabilise the unemployment rate, which is currently a concern for the RBA, at just over 5.5 per cent"
• "Additionally, persistent weakness in CPI inflation could potentially trigger a rate cut even sooner than expected."
  

• Monetary policy deliberations may then turn to the possible use of non-conventional policy measures if the outlook deteriorates further. 
  

• Survey is of more than 500 firms
• Survey conducted prior to the RBA rate cut last week

Australia - Consumer Inflation Expectations (August): 3.5% (prior 3.7%)

• The argument is that inflation expectations can become self-fulfilling.
• I think its more relevant during times of increasing inflation - people see inflation rising so they tend to buy more quickly, thus prompting prices to rise faster.
  People expect faster inflation (i.e. its 'unanchored' ... rising quickly)
• On the flipside, if inflation is either very low or in deflation (i.e. general falling prices), people hold off purchasing 'cause there is no rush if prices are falling, and again the argument is this behaviour can feed on itself and grow as a problem.
• People expect falling prices to fall harder ('unanchored')
  

Australia - "The RBA's impotence on show for the world"

This is in the Aussie press today

RBA Minutes: Lower Rates To Provide “Room for Stronger Growth” as Inflation Outlook Remains Muted

Policymakers at the Reserve Bank of Australia were adamant in their decision to lower interest rates this month, maintaining that there was no material change in their forecast for inflation.

“The latest CPI data for Australia had confirmed that inflation pressures were subdued, as had been expected when the previous forecasts were discussed in May. As such, the outlook for underlying inflation was little changed. Underlying inflation was expected to remain low for a time before picking up gradually as spare capacity in labour and many product markets diminished,” the minutes of the August 2 policy meeting showed Tuesday.

“In coming to their policy decision, members noted that the recent CPI data had confirmed that inflation was likely to remain low for some time. They also observed that while prospects for growth were positive, there was room for stronger growth, which could be assisted by lower interest rates.”

The RBA lowered its overnight rate to a record low of 1.5% earlier this month, as expected. It was the second time since May that the central bank eased monetary policy in response to weak inflation.

Policymakers’ decision to ease monetary policy boiled down to persistently weak inflation, a unique challenge for Australia. Annual inflation fell to just 1% in the second quarter, the weakest in 17 years.

Paradoxically, the Australian dollar increased following the latest rate cut. The Aussie has gained 1.8% against the US dollar since August 2, including reaching a four-month high last week.

The threat of deflation, while a challenge, has yet to have a major impact on growth. The RBA’s quarterly Statement on Monetary Policy showed last week that policymakers’ outlook on economic growth remains relatively unchanged over the next two years.

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AUD/USD forecast for the week of August 22, 2016

The AUD/USD pair initially tried to rally during the course of the week but just as we did the previous week, we ended up finding selling pressure near the 0.7675 level. This of course has been a significant barrier in the past, and the fact that we have formed a pair of shooting stars suggests just how much trouble were going to run into in this area. However, we did form a hammer before this, so I think at this point in time this is a market that goes back and forth in will probably be traded off of short-term charts at best.

AUD/USD Weekly Outlook August 22-26

The weekly winning streak in AUD/USD may be coming to an end, as the pair has posted a bearish weekly print. Ahead of last week, the pair had posted gains in 10 out of the prior 11 weeks, but a failure at highs in the past week has triggered a pullback in the pair, resulting in a small loss for the week.

The currency pair posted a loss of 27 points for the week, after a failed attempt at highs near 0.7751. The similar pattern was seen in the week prior, as the level introduced sellers. On a weekly chart a tweezer top candlestick pattern has now been printed, setting a bearish tone for the pair.

Despite only posting a small loss for the week, the pair traded very heavy in the last week, failing to capitalize on broad-based weakness seen in the Greenback, as well as a positive surprise in the Australian jobs report.

The US Dollar Index (DXY) was seen moving lower through the week, with a small recovery on Friday. The focus for the week was US interest rates, and with several Fed member comments suggesting a rate hike may materialize sooner than later, the FOMC meeting minutes failed to confirm the theory. Fed Dudley and Lockhart but suggested that a September rate hike is certainly on the table and emphasized strength in the labor markets. The meeting minutes revealed a divided Fed with opposing views on the labor markets and the economic outlook following the EU referendum. The takeaway from the minutes was that the Fed remains data-dependent, but potentially nearing a rate hike.

The Australian jobs numbers came above expectations despite previous rhetoric from the central bank suggesting the labor market may remain stagnant. The unemployment rate ticked down to 5.7% from an expected 5.8% and a prior reading of the same. Employment change figures came in above expectations with an additional 26,200 people finding employment in July, albeit the bulk of gains derived from part-time employment.

AUD/USD made another attempt at highs in the early week benefitting from the decline in the Greenback. The pair turned slightly ahead of last week’s high following Fed member Dudley and Lockhart’s hawkish comments. The pair experienced a stronger decline on the comments as compared to some of the other majors, and reached new lows for the week. The Australian jobs numbers provided a reprieve for the pair, but the recovery was short-lived as the US Dollar made a recovery near the end of the week, driving the exchange rate to fresh lows for the week.

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Goldman Sachs' Moffitt says AUD likely to rally toward 0.8, that’s when its a sell

Goldman Sachs' Philip Moffitt, heads of Asia-Pacific fixed interest

• "Australia is still offering positive yield and a stable currency
• That is going to put upward pressure on the Aussie
• At some point, the RBA will have to cut rates again
• "The currency will get a little bit stronger, but I think the bigger bet for us is to wait to sell it again rather than enter now to get the uptick. The bigger opportunity is for us to wait for it to get to 80."

• " ... been quite an increase in conversation around fiscal stimulus and investing in infrastructure and calling it investment rather than borrowing," Moffitt said. "Practically that's what's likely to happen before the RBA cuts again."

• "They need even more indication of lower inflation to force them"
  

Australia - Construction Work Done (Q2): -3.7% (expected -2.0%)

Australian construction activity data for the second quarter of 2016 (April - June)

• Comes in at a miss on expectations, down 3.7% q/q, under the -2.0% expected and below the -0.3% (revised from -2.6%) for Q1
  

• -1%
• -8%
• -4%

AUD/USD forecast for the week of August 29, 2016

The Australian dollar initially tried to rally during the course of the week but turned right back around to form a shooting star. We have formed three of these in a row now, and as a result a looks like we may struggle going forward. However, we have a hammer proceeding these three shooting star so that doesn’t mean that is necessarily going to roll over easily. With this, I think you can have the stick short-term charts, and of course pay attention to the gold markets as they have such a major influence on the Aussie dollar.