Australia is in for a busy trading week, with the RBA and a GDP report scheduled in the next few days. Here are catalysts you should watch out for!
RBA statement (Dec 4, 3:30 am GMT)
As expected, the Reserve Bank of Australia (RBA) kept its interest rates at 1.50% for a 27th month in a row in November.
Based on the monthly AND quarterly statements as well as the meeting minutes, we now know that RBA members feel more optimistic about economic growth and employment and that they expect consumer prices to “increase gradually” until 2020.
More importantly, Governor Lowe and his team believe that “higher interest rates are likely to be appropriate at some point.”
However, they also noted that until progress is made in reducing unemployment and keeping inflation steady, members also don’t see a “strong case to adjust the cash rate in the near term.”
Quarterly GDP (Dec 5, 12:30 am GMT)
The economy clocked in a 0.9% growth in Q2 2018, which marks the fastest growth in SIX years.
Details told us that it was mostly domestic demand and foreign trade that boosted the economy.
This week, market geeks expect to see growth cool down to 0.6% in Q3 2018. Since the RBA is expecting faster growth in its latest projections, a significant miss could weigh on the Aussie this week.
Retail sales and trade balance (Dec 6, 12:30 am GMT)
A disappointing retail sales report helped drag the Aussie lower early last month. Meanwhile, a better-than-expected trade data boosted the comdoll enough to change its intraweek trend after the report was released.
Given that the Aussie traders’ reactions tend to directly correlate with the results of these top-tier releases, then we should pay close attention to what market players are expecting for this month’s release.
Analysts expect retail sales to come in a bit stronger with a 0.3% growth in October from a 0.2% uptick in September. If sales extend their slowdown from the previous month, then we could see the Aussie trade lower against its counterparts.
Australia’s trade numbers will also be under the spotlight. Traders expect to see a surplus of 3.00B AUD, slightly narrower than the 3.02B AUD seen in September.
If trade numbers from other major economies are any indication, then it’s likely that we’ll also see the impact of higher crude oil imports take its toll on Australia’s trading activity.
Last Week’s Price Review
After last week’s beat-down, the Aussie staged a broad-based recovery this week and is currently poised to claim the second top spot (as of 7:00 am GMT).
The Aussie took directional cues from gold prices again and tracked gold prices higher.
However, other factors were in play, namely the prevalence of risk appetite due to hopes for a trade war truce. The Aussie was also one of the main beneficiaries of USD weakness in the wake of Fed Chair Powell’s dovish comments.
The Aussie had a running start thanks to the risk-friendly vibes during Monday’s Asian session as well as rising gold prices.
Risk aversion made a comeback during Monday’s London session, though, so the Aussie began giving back its gains. And to add salt to injury, Trump also gave the Aussie a bearish kick during Monday’s U.S. session when he said that:
“If we don’t make a deal, then I’m going to put the $267 billion additional on.”
“The only deal would be China has to open up their country to competition from the United States. As far as other countries are concerned, that’s up to them.”
Fortunately for the Aussie, risk-taking began to win out again when Tuesday’s Asian session rolled around.
The Aussie also spiked broadly higher when Chinese Foreign Ministry Spokesman Geng Shuang gave a presser since he said the following:
“The two heads of state agreed to seek a solution which is acceptable to both sides on the trade issues. Now the economic teams from the two countries are in contact to implement the important consensus reached by the two heads of state”
However, Geng Shuang later clarified that he was referring to a Nov. 1 telephone conversation between Xi Jinping and Trump, which obviously happened before Trump threatened to slap more tariffs on Monday, so the Aussie very quickly gave back those gains.
There was follow-through buying on the Aussie, though, probably because Geng Shuang implied that China is still willing to strike a truce when he said that:
“The China-US summit is just around the corner. We hope that the US can meet China halfway and follow the consensus reached by the two leaders at the telephone conversation to strive for positive outcomes of this summit.”
Sadly for the Aussie, Greenback bulls were jolted awake when Fed Vice Chair Richard H. Clarida gave a speech during the U.S. session since Clarida gave a rather upbeat assessment of the U.S. economy. He also said that “risks have become more symmetric and less skewed to the downside.”
And while Clarida repeated his neutral message from two weeks ago that the Fed should be especially data-dependent, he gave his message a hawkish twist when he also said that (emphasis mine):
“If, for example, incoming data in the months ahead were to reveal that inflation and inflation expectations are running higher than projected at present and in ways that are inconsistent with our 2 percent objective, then I would be receptive to increasing the policy rate by more than I currently expect will be necessary.”
Moving on, the Aussie would eventually regain its footing when White House economic adviser Larry Kudlow revived hopes for a trade war truce when he said that Trump believes that there is a “good possibility” that a deal between China and the U.S. may be struck during the G20 summit.
Hopes for a trade war truce then helped to sustain risk appetite on Wednesday, which is likely why most AUD pairs had a slight upward tilt even as gold prices traded sideways.
However, the Aussie later got a strong bullish boost (except against NZD) when Fed Chair Powell’s speech gutted the Greenback.
You see, the two main takeaways from Powell’s speech is that (1) the Fed is adopting a more neutral and data-dependent stance and that (2) Powell now thinks that rates are now “just below” neutral. And remember, Powell said during an Oct. 3 speech that rates were “a long way from neutral.”
Follow-through buying on the Aussie was only limited, though, probably because of profit-taking. The Aussie also got slapped lower when Australia’s CAPEX report surprised to the downside.
However, risk-taking persisted and gold prices were turning higher, so AUD bulls eventually began winning out.
AUD bulls began losing steam during Thursday’s U.S. session, though, likely because there were signs of returning risk aversion.
Fortunately for the Aussie, the FOMC minutes finally put an end to the Aussie’s retreat, likely because the minutes reinforced the idea that the Fed is shifting to a more neutral and data-dependent stance.
There was very little follow-through buying, though, and the Aussie began trading sideways, probably because traders were bracing themselves for the G20 summit.