Greenback strength and a couple of weak Australian data didn’t do the Aussie favors last week. Will the tides change with this week’s set of potential catalysts?
RBA’s policy statement (May 1, 4:30 am GMT)
As expected, the Reserve Bank of Australia (RBA) kept its rates steady at a record low of 1.50%. It marked the 19th consecutive month that the central bank hasn’t changed its rates. That’s the longest since records began in the 90’s!
The report didn’t really tell the markets anything new, so traders shrugged off the release in favor of extending the bullish run due to a strong lower-tier report printed earlier in the session.
Will the RBA illicit more reaction from us this week? The odds look iffy. For starters, analysts aren’t expecting rates to change from 1.50%. And if last month’s meeting minutes is any indication, the RBA also thinks that there’s “not a strong case for a near-term adjustment in monetary policy.” Yipes!
Trade balance report (May 3, 1:30 am GMT)
Australia clocked in a trade surplus of 0.83B AUD in February, which is lower than January’s downwardly revised 0.95B figure but still higher than the 0.78B surplus that analysts had expected.
The Aussie failed to capitalize on the strong reading, however, as January’s downward revision and a bit of profit-taking from the bulls kept the comdoll on the defensive.
This week market geeks are expecting the surplus to inch back up to 0.95B AUD in March. Remember that the Aussie had fallen sharply during the month, which could have helped the exporters’ cause. Then again, trade war fears could have also restricted their activities.
As mentioned below, the Aussie was at the mercy of risk sentiment a time or two last week. And while there are no major geopolitical events scheduled this week, you should still watch out for any news that might affect the high-yielding Aussie.
Aussie traders should also pay attention to overall Greenback demand. Higher U.S. bond yields, for example, would tighten its spread with Australia’s own yields and lessen the demand for the comdoll.
And then there are global trade-related news. Word around the hood is that Trump’s steel and aluminum tariff exemptions for Canada and Mexico are set to expire. Keep your eyes glued to the tube to see if the Donald will take a hard stance on trade against Uncle Sam’s closest neighbors!
Last Week’s Price Review
The Aussie is the second weakest currency of the week after the Kiwi (as of 6:00 am GMT).
As usual, the Aussie was taking some directional cues from gold prices. But as you can see in the overlay of AUD pairs above, the Aussie didn’t track gold prices that closely.
Interest rate differentials and Greenback strength (or weakness) are the likely reasons that hindered the Aussie from tracking gold prices closely.
However, risk sentiment also apparently had an effect on the higher-yielding Aussie’s price action.
Risk appetite, for example, was the dominant sentiment during Monday’s Asian session and London session. Gold was already retreating at the time, but only AUD/USD and AUD/CHF were tracking the slide gold prices closely while the other AUD pairs only grudgingly did so.
But when risk appetite began to fade during Monday’s U.S. session, we can see that the Aussie’s weakness became more broad-based.
The Aussie’s slide finally showed signs of stabilizing by Tuesday, likely because risk appetite was showing signs of coming back.
However, Australia’s quarterly CPI report failed to meet expectations, which kicked the Aussie lower as a knee-jerk reaction and likely helped to pin the Aussie down.
Risk-taking persisted during Tuesday’s London session and gold prices began to tilt to the upside. In addition, the Greenback’s rally began to stall, so the Aussie’s price action began to tilt to the upside as well.
Unfortunately, the Greenback regained its mojo and risk aversion made a comeback during Tuesday’s U.S. session. And so the Aussie began to slide again, even though gold prices extended their gains.
Risk aversion intensified on Wednesday and gold prices continued to fall, so the Aussie had a rough time on most pairs before becoming a bit more mixed by Thursday.