Today will be a big day for the Australian dollar with the release of the trade data and the Reserve Bank of Australia’s (RBA) decision.
“The fact is the buyers are still happy to pick up the Aussie on the dips, and this is encouraging for the Aussie bulls,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
But so far, the Aussie has been the laggard while the rest of the G10 and most of the BRIC and emerging markets experienced an uptick in positive data over the past few months.
According to McKenna, the release of weaker than expected retail sales for February yesterday made it a bit complicated for traders to interpret the economic outlook.
The weaker than expected data saw the Aussie come under some selling pressure yesterday. It fell from a high around 0.7640 to a low in the 0.7580’s before mounting a bit of a recovery.
McKenna added that, “In no small measure the trade data and RBA decision will be important in determining the direction of the Aussie dollar in the short-term.”
“What Governor Lowe has to say about the state of the economy is going to be important for the Aussie dollar,” he said.
By their comments and actions lately we know Australia’s prudential regulator – APRA – and the RBA are worried about the surge in house prices, interest only and investment borrowing at the moment and want to rein it in.
However, the RBA is already worried Australia has too low an inflation.
“They are also a little worried that overall unemployment and underemployment are in worse shape than just the headline ABS figure suggests,”
“When you look at the falling trend in retail sales growth. And you take into account that the contribution of consumers to the Q4 2016 GDP growth was driven by another fall in the savings rate, it’s worth wondering if the RBA might not see a need for further stimulus,” McKenna noted.
He added, “I believe that based on Governor Lowe’s words and the most recent RBA board meeting minutes that the RBA does believe the economy could be aided by a further rate cut.”
But he’s worried whether with household debt at record levels “is it really in the national interest to get a little bit more employment in the short term at the expense of encouraging that fragility?”
McKenna said that’s the answer that has markets convinced he won’t cut, or hint at a cut.
“But with APRA trying to clamp down on rampant borrowing and address the issue of fragility in the economy all this debt brings the door just might be further ajar than the market thinks,” he said.
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