Australia is in for a busy calendar week, fellas! I’ve listed down the top-tier releases you should watch out for this week. Check it!
Retail sales (Sept. 3, 1:30 am GMT)
Retail activity accelerated by 0.4% in June, marking the report’s sixth consecutive monthly growth. It was a welcome data for the RBA, which is concerned over household debt weighing on consumer spending.
This week market geeks expect retail sales to inch another 0.3% higher in July.
Keep in mind, however, that a quarterly report of company operating profits and ANZ’s monthly job ads report will also be printed at the same time of the release. Make sure you’ve considered several scenarios if you’re planning on trading this report!
RBA’s statement (Sept. 4, 4:30 am GMT)
As expected, the Reserve Bank of Australia (RBA) kept its interest rates steady at 1.50% for another month in August. No surprises there, which was why the Aussie also barely reacted to the decision.
The picture doesn’t get any more interesting this week since analysts are still expecting Governor Lowe and his team to stick to their guns for a TWENTY-THIRD month in a row.
If there’s any volatility to gain from the event, then it will most likely be from any small changes in the RBA’s statement. Look out for its sentiments on the Aussie’s price levels, inflation forecasts, and risks from “international trade policy in the United States!”
Quarterly GDP (Sept. 5, 1:30 am GMT)
Australia’s economy grew by 1.0% in Q1 2018, a bit better than the 0.9% uptick that many had expected.
Details revealed that exports did the heavy lifting while government spending, household consumption, and inventories also
This week analysts are only expecting to see a 0.8% growth (2.8% in annualized terms) in Q2 2018 as trade war fears, weakening business sentiment, and drought in some parts of Australia are expected to weaken growth by a bit.
And if that’s not ominous enough, remember that better-than-expected reports from China barely moved the charts last week since traders thought the U.S.-China trade war would eventually drag the lagging indicators lower anyway.
Trade balance (Sept. 6, 1:30 am GMT)
Australia printed its largest trade surplus in THIRTEEN months in June. Exports shot up by another 2.6% to reach its all-time high while imports slipped by 0.7%.
Market players weren’t impressed, however. See, many pointed out that nominal exports and imports pretty much grew at the same pace in Q2 2018 and aren’t likely to contribute to GDP anyway.
On Thursday market geeks expect Australia’s trade balance to narrow down from 1.87B AUD to 1.46B AUD in July.
A significantly higher-than-expected surplus could boost the Aussie for the rest of the trading session, so y’all better be prepared for a spike in volatility!
Global trade concerns
As mentioned below, the Aussie mostly tracked the Chinese yuan for a good part of the week. The U.S. failing to secure a deal with Canada within the rumored Friday deadline last week doesn’t do favors for risk sentiment.
See, word around the hood is that the Trump administration won’t step up its trade negotiations with China until it shakes hands with its NAFTA counterparts. In fact, it’s even more likely that the POTUS would step up its TARIFF game and impose dues on even more Chinese products!
Keep your eyes glued to the tube in case we see any relevant headlines this week, aight?
Last Week’s Price Review
The Aussie will soon be marking its fourth consecutive week of net losses since the Aussie is presently the biggest loser of the week (as of 6:00 am GMT).
At first glance, the Aussie appears to be taking directional cues from gold prices as usual. However, the Aussie didn’t really track gold prices too closely this week. And that’s because the Aussie was taking directional cues from the Chinese yuan again.
As you can see, the Aussie’s correlation to the Chinese yuan is much tighter. As to why the Aussie was taking more directional cues from the yuan again, this is probably the reason why. And remember, the Aussie is being used as a proxy for China because Australia’s main export market is China.
TRUMP CRITICIZES CHINA, saying he rejects their request for more trade talks.
"They want talk. It's just not the right time to talk right now, to be honest, with China. It's been too one-sided for too many years, for too many decades and so it's not the right time to talk."
— Jennifer Jacobs (@JenniferJJacobs) August 27, 2018
There were still instances when AUD pairs kinda decoupled from the yuan, though, so other factors were therefore in play. And I’ve already marked them on the overlay of AUD pairs.
As for specifics, the Aussie got kicked sharply lower on Wednesday, apparently because of the news that the Westpac Banking Corporation will hike rates on variable home loans by 0.14% to 5.38%, effective September 19.
And for the newbies out there, Westpac’s move is kind of a big deal since Westpac is the first of the so-called “Big Four” banks in Australia to hike variable mortgage rates because of higher costs.
And if the rest of the “Big Four” banks also decide to hike, then that will likely convince the RBA to keep rates steady even longer since a rate hike from the RBA will very likely only hurt consumers and may even lead to a housing market problem.
Moving on, AUD pairs (except AUD/NZD) also got a strong bearish kick when Australia’s capital expenditure (CAPEX) report printed a 2.5% slump in Q2 2018, contrary to expectations for a 0.6% increase. And it probably didn’t help that Australia’s building approvals report, which was released simultaneously with the CAPEX report, also failed to impress by printing a 5.2% drop (-2.2% expected).
The final clear instance when AUD pairs decoupled from the yuan (and gold prices) is on Friday, apparently because of the RBA’s Corporate Plan report since the report noted that (emphasis mine):
“The Reserve Bank, together with the other CFR agencies, continues to closely monitor developments in residential mortgage lending and the risks arising from the high level of household indebtedness.”
“The high debt levels could complicate future monetary policy decisions by making the economy less resilient to shocks.”
And remember what I noted earlier about Westpac’s decision to hike variable mortgage rates and the potential implications for the RBA’s monetary policy.
Well, that’s that the RBA is implying here, which is likely why the Aussie got kicked lower even as the yuan and gold prices recovered.