Surf’s up for the Aussie! The Australian dollar caught one bullish wave after another this week, and it could continue being one of the better-performing currencies in the forex lineup. Here are some reasons why AUD could keep climbing:
1. RBA didn’t cut interest rates… yet.
Earlier this week, Reserve Bank of Australia (RBA) Governor Glenn Stevens and his gang of policymakers decided against cutting interest rates, allowing the Aussie to breathe a sigh of relief. The central bank wanted to stay in a wait-and-see mode, indicating in their official statement that they plan on looking at upcoming data to determine whether or not further stimulus is necessary.
Even though Governor Stevens mentioned that monetary policy should stay accommodative, he also pointed out that inflation is likely to stay consistent with their target over the next couple of years. Forex market watchers noted that there was no forward guidance suggesting that the RBA is gearing up to lower borrowing costs later on, which was interpreted as a positive sign for the Aussie.
2. Australia’s Q1 2015 GDP beat expectations.
The freshly-released Q1 GDP report gave Australia an additional confidence boost, as the actual reading came in better than expected. The economy expanded by 0.9% during the period, bringing the annualized GDP to 2.3% and outpacing the consensus of a 0.7% quarterly growth figure.
Components of the report revealed that growth was spurred mostly by the jaw-dropping 5% jump in exports, despite the drop in commodity prices then. Apart from that, the 0.5% increase in consumer spending and the pickup in mining activity also contributed positively to growth. Although business investment deducted 0.3% from the GDP reading, forex analysts decided to look at the silver lining and noted that the fall wasn’t as bad as expected.
3. Chinese stimulus to keep Australia’s exports supported?
Remember the time when the Chinese central bank went on an easing spree? Well, those stimulus efforts have yet to kick in and pull China’s economy out of the rut. Once that happens, manufacturing activity in the world’s second largest economy and Australia’s number one trade buddy could accelerate and spark stronger demand for raw materials and commodity exports.
In addition, the rebound in iron ore prices over the past months might push export volumes and values higher, paving the way for a potential pickup in mining activity and investment. Whether or not this is enough to convince the RBA to drop its easing bias remains to be seen, as the central bank is also looking at other factors such as wage inflation and business capital expenditure – both of which are still looking bleak.
For now, the Australian dollar might be able to hold on to its recent forex gains and perhaps go for more, thanks to the not-so-downbeat economic happenings in the Land Down Under. Even though the actual reports were far from being impressive, Aussie bulls found a reason to party in knowing that things weren’t as bad as expected. How long do you think this might last?