After four straight weeks of declines, the Australian dollar appears to have found short-term support just above the 72 cent level.
The AUD/USD opened Monday’s trading session buying .7228, largely unchanged from Friday’s closing level in New York.
It currently buys .7229.
With next to no market moving data scheduled on Monday, the Aussie is yet again likely to be influenced by movements in crude oil futures, along with movement in the US dollar index.
“As per usual, AUD/USD will remain influenced by USD movements as well as commodity prices and equity markets,” said Elias Haddad, senior FX strategist at the CBA in his Monday morning update. “Given credit spreads are narrowing again, a factor usually associated with rising equity markets, we believe the immediate downside in AUD/USD will be somewhat limited this week.”
While there is very little for markets to get excited about on Monday, Haddad notes that there are some significant domestic data events scheduled later in the week.
“On Tuesday, RBA Governor, Glenn Stevens makes some remarks at the Trans-Tasman Business Circle boardroom briefing in Sydney,” wrote Haddad. “Stevens may draw reference to the low inflation and wages environment, and provide some further guidance on just how much RBA board members needed to be “persuaded” to cut interest rates earlier this month.”
Outside of Stevens’ speech on Tuesday, markets will also have to digest the release of ABS’ March quarter business capital expenditure report on Thursday, an event that has traditionally created volatility in the Aussie, particularly the estimates for capital expenditures in the year ahead.
“We don’t anticipate the market will as pay much attention to these numbers as they have in previous releases,” says Haddad.
“This is because the main economic focus at the moment is low inflation, and the capex survey does not provide a good enough read on the inflationary outlook to be a determining factor in whether the market will price a greater chance of the RBA bringing forward their next interest rate cut to June or not.”
Outside of domestic data, Haddad believes that the US dollar will remain “firm” in the week ahead, underpinned by “encouraging economic activity” and attempts from US Federal Reserve policymakers to lift US rate hike expectations.
“The pick-up in the US ISM new orders-to-inventory ratio suggests US capital goods shipment non-defence excluding aircraft (a good proxy for business investment) will increase in April. Moreover, positive revisions to US retail sales, higher business inventories, and a narrowing in the trade deficit, point to an upward revision to US Q1 GDP growth,” notes Haddad.
“Meanwhile, speakers on the FOMC will continue to guide US interest rate expectations higher which will further support the USD.”
This will culminate in a speech from Federal Reserve chair Janet Yellen on Saturday.