Having closed at the lowest level since March 1 last week courtesy of strong US retail sales and consumer confidence data released on Friday evening, the Australian dollar has continued to unwind in early Asian trade on Monday, weighed down by the release of weak Chinese economic data over the weekend.
At one point this morning the AUD/USD fell to as low as .7237 before recovering in recent trade. It currently fetches .7261, down 0.03% on Friday’s closing level.
Elias Haddad, FX strategist at the CBA, believes the trend in both the Australian and US dollars will likely continue in the week ahead.
“We think the rebound in the USD can continue this week,” said Haddad in his Monday morning note.
“In April, US headline retail sales rose by a robust 1.3% and the US retail sales control group which feeds into US GDP increased by 0.9%. That is the strongest rise in the control group since March 2014 and following upward revisions the 3-month annualised growth rate is now sitting at 3.9%.
“This is a positive start to Q2, and points to a pick-up in US growth. Indeed, the upward revisions suggest Q1 growth could be revised up.”
Although there is no major economic data scheduled for release domestically, regionally or offshore on Monday evening, Haddad notes that there are several important domestic data releases on the radar this week which could be influential on the Aussie.
“In Australia the main AUD focus this week are the minutes of the May RBA meeting (Tue), Q1 wages (Wed) and April labour report (Thu),” says Haddad.
“Given the detail in the RBA Statement on Monetary Policy, published three days after the May RBA meeting, the minutes will not provide much additional information. We are looking for an additional 50bps of rate cuts by the RBA in 2016 (25bps in August and 25bps in November) which will continue to weigh on AUD.”
In particular, Haddad suggests the wage price index and April jobs figures will take on added significance.
Australia’s wage Price Index (WPI) often flies under the radar. But it takes on added importance this time given the RBA’s assessment on the outlook for inflation. We expect wages growth of 0.5% QoQ in Q1 which would leave annual wages growth at 2.2% (in line with participant expectations). A weaker print could see market expectations for a June rate cut intensify and further undermine AUD. With respect to Australia’s labour report, the leading indicators of employment point to decent jobs growth in April. CBA economists have pencilled in a rise of 20k jobs in April and a 0.1% tick-up in the unemployment rate to 5.8% due to a lift in the participation rate. A favourable Australian April employment report can provide AUD with some support later in the week.
With those events still to arrive in the days ahead, the quiet economic calendar on Monday suggests that movements in USD/JPY, USD/CNH and in regional stock markets will likely be influential on the movements in the Australian dollar during Asian trade.
Here’s the current Australian dollar scoreboard.
- AUD/USD 0.7261 , -0.0002 , -0.03%
- AUD/JPY 78.87 , 0.16 , 0.20%
- AUD/CNH 4.7567 , 0.0066 , 0.14%
- AUD/EUR 0.6419 , 0.0007 , 0.11%
- AUD/GBP 0.5056 , 0.0005 , 0.10%
- AUD/NZD 1.0721 , 0.0014 , 0.13%
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