AUD Posts on Forex Blog
RBA: We will Cut Rates Soon
Aug 13, 2008
In their policy statement released last week, the central bank of Australia all but guaranteed a rate cut before the year ends.
Today, they have made it a guarantee.
In a statement before Australian lawmakers, RBA Deputy Governor stated "We cannot wait to see a fall in inflation before we start cutting rates".
The AUD has been hit hard in recent weeks, falling 13 of the past 14 trading sessions and each of the past 7 days.
Like Europe, Australia has seen a sharp reduction in retail sales. While inflation remains considerably high at 4.4%, an interest rate of 7,.25% leaves them room to cut in an inflationary environment.
Helping the RBA's case, the latest Inflation Expectations report drop considerably from 5.9% to 4.9%.
Futures markets are now pricing in a 50bps rate cut in their Sept 2nd policy meeting.
interest rates, AUD, RBA, rate cut, comments
RBA Joins Wait and See Crowd, Holds
Aug 4, 2008
The Reserve Bank of Australia has officially joined the tide of wait and see.
As expected by just about everyone, they held rates steady at 7.25%.
But despite early market anticipations for a rate cut by October, and a slew of negative economic data, their statement remained considerably hawkish.
"The rise in Australia’s terms of trade that is currently occurring is...adding substantially to national income and ability to spend. At the same time, high prices of oil and a range of other commodities have added to global inflationary risks. They are also dampening growth in a number of countries."
Note the 'other countries' comment. Clearly, the RBA remains convinced Australian commodities will remain a source of growth forth foreseeable future.
As most expected, the RBA did caution on growth.
"The evidence is that the tightening in financial conditions, in conjunction with other factors including rising fuel costs, and lower asset values, has restrained demand...credit expansion to both households and businesses has slowed significantly. Surveys suggest a softening in business activity, and there have also been some early signs of an easing in labour market conditions."
Like Europe and so many other countries, the Australians are starting to see signs of a slowing economy. Nevertheless inflation remain s a concern for the short term.
"On balance, however, it is looking more likely that demand will remain subdued, and economic growth will be fairly slow, over the period ahead. Inflation is likely to remain relatively high in the short term, with the CPI affected by high global oil prices. Looking further ahead, inflation in both CPI and underlying terms is likely to decline over time, given the outlook for demand, provided wages growth remains moderate. The Bank’s forecast remains that inflation will fall below 3 per cent during 2010."
Like most of the industrialized world, a conundrum of sorts has formed. Caught between inflation pressures and early signs of a slowing economy, the RBA must wait for a clearing of the economic waters.
Welcome to the world of wait and see Governor Glenn Stevens.
Carry Trade, AUD, Aussie, RBA, Reserve Bank of Australia
Forex Preview July 27 - Aug 1
Jul 27, 2008
Save for a whirlwind of activity on Tuesday, this week is largely devoid of major macroeconomic reports.
The key macroeconomic themes will once again be
a) European CPI (Germany, Italy, the Eurozone, and Switzerland)
b) US Nonfarm payrolls Friday
With oil falling 15% over the last 3 weeks, European CPI and may come in as expected. A slight stunner considering the recent series of higher than expected readings.
Monday July 28
7:30pm Japan Household Spending
7:50pm Japan Retail Sales and Trade
Tuesday July 29
Germany CPI (expect 0.5% MoM, 3.2% YoY)
2:40am France Consumer Confidence (expect -47)
2:45am France PPI (expect 0.8% MoM, 7.3% YoY)
4am UBS Switzerland Consumption Indicator
8am Germany IFO Business Climate Survey
9am US Case Shiller Home Price Index
10am US Consumer Confidence (expect 50)
7:50pm Japan Industrial Production
11pm German Retail Sales
Wednesday July 30
4am Italy PPI (expect 0.9% MoM, 8.2% YoY)
5am Eurozone Consumer Confidence (expect -18)
9:30pm Australia Trade Balance (expect a drastic shrinking from -965 million to -100 million)
9:30pm Australia Retail Sales
Thursday July 31
1:45am Swiss CPI (expect -0.4% MoM, 4.0% YoY)
5am Italy CPI (expect 0.4% MoM, 4.0% YoY)
5am Eurozone CPI Estimate (expect 4.1%)
5am Eurozone Unemployment (expect 7.2%)
8:30am US Q2 GDP (expect annualized 2.0%)
8:30am Personal Consumption (expect 1.4%, core 2.0%)
Friday August 1
2:30 am Australia RBA Commodity Index
8:30am US Nonfarm Payrolls (expect -75k)
8:30am US Unemployment Rate (expect 5.6%)
10am US ISM (expect 49.2 Manufacturing)
1pm Italy Government Budget
CPI, jobs report, AUD, EUR
FX Preview July 20 - July 25
Jul 19, 2008
This is a light weak for market data, with the most interesting reports coming out of:
Australia (PPI on Sunday, CPI Tuesday)
Canada (Retail Sales Tuesday and PPI Wednesday)
UK (BOE minutes Wednesday, Retail Sales Thursday, and Q2 GDP Friday)
Be careful getting long AUDUSD as the breakdown in oil and gold could spell trouble for the commodity based Aussie. I would stay long AUDNZD as that play is based on the comparative directions of the 2 economies.
Earnings from several regional banks and a possible diplomatic deal with Iran could be the biggest market movers for the USD.
I will be taking the next week off. Have fun trading!
Sunday July 20
9:30pm Australian PPI (expect 1.6% QoQ, 5.3% YoY)
Monday July 21
3:15am Swiss Producer and Import Prices (expect 0.5% MoM, 4.4% YoY)
time not listed Bank Of America Earnings (expect 0.53 a share)
Tuesday July 22
2:15am Swiss June Trade Balance (expect 1.6 billion)
4am Italy Trade Balance
8:10m US treasurer Hank Paulson Speaks
8:30am Canadian Retail Sales (expect 0.5% MoM)
9:30pm Australian CPI (expect 1.3% QoQ, 4.3% YoY)
time not listed Bank of Florida earnings (expect -0.01 per share)
after market close Etrade earnings (expect -0.14 per share)
after market close Washington Mutual earnings (expect -1.05 a share)
Wednesday July 23
4am Italy Retail Sales (expect 0% MoM, -0.4% YoY)
4:30am Bank of England minutes from last policy meeting
7am Canadian PPI (expect 0.5% MoM, 2.9% YoY)
7am Canadian PPI Core (expect 0.1% MoM, 1.6% YoY)
10:30am US Crude Inventories
5pm Reserve Bank of New Zealand Rate Decision (expect hold at 8.25%)
Thursday July 24
4am German IFO Survey (look for weakness mirroring the ZEW Survey last week)
4am Eurozone Current Account
4:30am UK Retail Sales (expect -2.2% MoM, 4.4% YoY)
10am US Existing Home Sales (expect 4.97 million)
7:30pm Japan CPI July
Friday July 25
4:30am UK Q2 GDP (expect 0.2% QoQ, 1.6% YoY)
8:30am US Durable Orders (expect 0%)
10am US New Home Sales (expect 507k)
10am US Michigan July Consumer Sentiment Finalized (expect 56.3)
time not supplied T Rowe Price earnings (expect 0.60 per share)
BOE, CAD, AUD, upcoming reports, RBNZ, Ifo, Pound
Assessing FX Trades After a Crazy Day in America
Jul 11, 2008
Unless you have had your head buried in the sand, the multiple crises of the day have not escaped you attention.
On the one hand, we have a continuing credit crises in America, (Fannie, Freddie, and Lehman Bros). On the other hand, we have major global political instability (Iran, Nigeria, likely Sudan indictment, failed Zimbabwe sanctions, Russia trying to buy Libyan oil).
So what is a forex trader to do?
Going long the Euro seems like a safe heaven. But did it move on Euro strength, or perceived Dollar / Pound / Yen weakness? I think the answer is the latter.
So what trades do we take on?
At the end of the day, FX prices are largely determined by 2 factors - interest rates and economic outlook. So let's take a look at these 2 factors compared to some of the majors.
USD - Interest rates remain low. And after this week, it is hard to believe the Fed will raise rates in the next few meetings.
OTOH, jobs, trade balance, and the preliminary Michigan consumer sentiment all beat expectations. It is far too soon to have a rosy outlook on the economy, perhaps a slew of earnings next week will help establish some clarity on that factor. Merril, Citigroup, JP Morgan, Intel, and Google will report earnings.
EUR - Trichet has 'no bias'. Several prominent Euro finance ministers and the vice president of the ECB have stressed the need for a balancing of growth and inflation. One can not say with any definitive certainty that interest rates will rise.
On the economic front, the situation continues to deteriorate (though nowhere near as fast as in the US). Trade balances disappointed this week. Production and confidence is falling.
The currency will almost certainly pass 1.61 in the next week, but beyond that the future is uncertain.
GBP - Interest rates remain at 5%. However, many traders and economists actually speculated they would cut rates at their meeting on Thursday, despite their inflation problems.
Like the US, their economy is struggling amidst a credit crunch. Housing continues to fall. Relative to the US, housing may prove to be a bigger problem for the Brits, as they have a higher percentage of toxic debt, and more personal indebtedness.
AUD - Interest rates remain at an astounding 7.25%. And speculators constantly suggest the bank may still raise rates again.
This week, jobs come in positively at almost +30k, wiping out last month's losses. Overall, the economy seems to be humming along. And why shouldn't they? China and India have been great export customers in a commodity driven environment.
NZD - While interest rates remain high, pressure is building for cuts. They certainly won' raise rates anytime soon.
On the economic front, things are worsening as they too suffer from a decline in housing, reduced consumer confidence, and a declining trade balance.
CAD - Interest rates remain stable at 3%, and are unlikely to change next week. That they did not cut as expected by many last month suggests their bias may be to raise rates. Look for any BoC comments next week for guidance.
On the economic front, they continue to do well. Being a large oil exporter with these record prices certainly doesn't hurt. Building permits and trade surprised to the upside this week.
JPY, CHF - No comment.
By my assessment, long term trades should focus on:
go long the AUD and CAD.
short the GBP and NZD.
avoid EUR and USD for anything but short term scalps as their is distinct lack of clarity.
My recommended trade would be long the AUDNZD
CAD, trade balance, AUD, fundamental, EUR, GBP, USD
Australia Hold Rates at 7.25%
Jun 30, 2008
As was expected, the RBA has held rates steady at 7.25%.
Forex traders are reacting quickly, sending the Aussie down against most of the majors. However, midterm traders need to look at this situation with some consideration.
Yesterday, the TD Securities-Melbourne Institute survey estimated an annual inflation rate of 4.8 %. That is well above the target 2-3% range. Commodity demand from China is likely to continue as their economy is forecast to grow by 10.3% this year.
In the policy statement, the bank noted:
"The rise in Australia's terms of trade that is currently occurring will...add substantially to national income and ability to spend, even with the slowing in global growth to below-trend pace that the Bank is assuming. At the same time, rising prices of oil and a range of other commodities are adding to global inflationary risks."
The minutes from this meeting will be very interesting. One has to wonder how heavily the sharp contraction in PMI (down to the contraction level of 47) factored in their decision.
The full statement:
STATEMENT BY GLENN STEVENS, GOVERNOR
MONETARY POLICY
At its meeting today, the Board decided to leave the cash rate unchanged at 7.25 per cent.
Inflation in Australia has been high over the past year in an environment of limited spare capacity and earlier strong growth in demand. In these circumstances, the Board has been seeking to restrain demand in order to reduce inflation over time.
As a result of earlier decisions by the Board, additional rises in market interest rates and tougher credit standards for some borrowers, there has been a substantial tightening in financial conditions since the middle of last year. Conditions in international financial markets remain difficult, with credit concerns resurfacing in the past month.
The evidence is that the tightening in financial conditions, in conjunction with other factors including rising fuel costs, is working to restrain demand. Indicators of household spending have recorded subdued outcomes over recent months, and credit expansion to both households and businesses has weakened significantly. There have also been some tentative signs of an easing in labour market conditions.
The rise in Australia's terms of trade that is currently occurring will work in the opposite direction. It will add substantially to national income and ability to spend, even with the slowing in global growth to below-trend pace that the Bank is assuming. At the same time, rising prices of oil and a range of other commodities are adding to global inflationary risks.
Given the opposing forces at work, considerable uncertainty remains about the outlook for demand and inflation. On balance, while the inflation outlook remains concerning, the Board's assessment continues to be that demand growth will be moderate this year. The most recent flow of information has given additional support to that assessment. Inflation is likely to remain relatively high in the short term, and the CPI will be further boosted in coming quarters by the recent rises in global oil prices. Looking further ahead, inflation in both CPI and underlying terms should decline over time, provided demand continues to evolve as expected.
Weighing up the available domestic and international information, the Board's judgement is that the current stance of monetary policy remains appropriate. The Board will continue to evaluate prospects for economic activity and inflation in the light of new information.
RBA
inflation, interest rates, trade balance, AUD, RBA, Reserve Bank of Australia
Aussie Dollar Falls on Unemployment Rpt
Jun 11, 2008
The June labor force report from the Australian Bureau of Statistics (ABS) showed an unexpected increase in unemployment. April was revised higher to 4.3%, while May held steady at 4.3%. Specifically, the total number of people employed fell 19,700.
Expectations had been for a drop in unemployment to 4.2% with an increase in jobs by 13,500. Subtracting the real drop vs expected growth reveals a 33,200 swing in jobs. This is the first decrease in employment since October 2006. The loss was evenly split between full-time (- 53% 10,400) and part-time (-47% 9,300).
10.69 million people remain in employment.
Combined with yesterday's fall in Australian consumer confidence (-5.7%), the chances for a rate hike seem remote. Some economists now see rate cuts starting in 2009.
In early hours of the Asian session, the Aussie has fallen against most of the majors. The AUDUSD fell to a new multi week low as the currency traded from A$0.9406 down to A$0.93920.
Other forex trades: AUDCAD A$0.95810 (-0.13%), AUDJPY A$100.66 (-0.09%), EURAUD €1.6485 (+0.04%).
jobs report, AUD, Aussie
Go Oz! Minutes from May 6 RBA Meeting Sends the Aussie Dollar to 24 Year High
May 19, 2008
The Reserve bank of Australia released their minutes from the May 6th meeting today. During that meeting, they held rates steady at 7,25%. However, the minutes show policy makers spent a great deal of time discussing a further rate hike. Inflation "was uncomfortably high" for many policy makers.
The Australian Dollar is up 12.8% vs the US Greenback so far this year. With an upside bias, and New Zealand falling off the rate hiking bandwagon, the trend may continue. According to Okasan Securities, the Aussie currency has broken a trendline from 107.87 (Oct 31) - 99.84 (May 7), suggesting a move to as much as 100.35.
Read more at Bloomberg
AUD, Aussie, RBA, Reserve Bank of Australia
Job Reports, Inflation Drive Australian dollar Up, New Zealand dollar Down
May 8, 2008
New Zealand reported the largest decline in employment in 19 years yesterday. The deterioration of New Zealand's economy in recent months has shown that the Central banks efforts to cool the economy have largely worked. Many forex traders now believe the central bank will begin to cut rates from the record 8.25%. Rates may fall as much as 1% in the ne3xt year according to a Credit Suisse Index.
In Australia, jobs grew for a record 18th month, and the central bank raised inflation forecasts. Australia's dollar was trading at NZ$1.2187 (+1.2%).
read more at Bloomberg
jobs report, AUD, Aussie
