GO Markets FX Analysis | A$ down but not out; global risk trends to define the trend

A$ down but not out; global risk trends to define the trend

After a mid-week bout of the jitters, the Australian dollar reclaimed some lost territory on Friday following encouraging Chinese data. Nonetheless, it was hardly a rally to write home about, and it’s apparent the Aussie’s credentials as a currency tied to a fundamentally sound economy remains under the microscope. The Reserve bank has been afforded the necessary “scope” to cut rates, and markets have suitably responded by selling the Aussie. In what should mark a pre-Christmas surge in spending, last week we learned local retailers continue to do it tough amid further signs the labor market conditions remain moderate at best. Overall, recent economic feedback supports the case for the RBA to ease in the second-quarter and investors have reacted accordingly.

Nevertheless, supportive behavior noted above 102.5 US cents appears to have contained the selling and we believe sufficient domestic ‘bad news’ has been priced in for now. A fairly light week in terms of local directives should see the Aussie’s next move defined by global risk trends for which we can rely on host of themes abroad to keep things interesting.

Markets will be watching closely President Obama’s State of the Union address scheduled for Tuesday. While subjects such as gun control will no doubt be on the agenda, Obama will use the platform to talk about key economic objectives for the government including job creation and the – seemingly never-ending – debt ceiling debacle. Following are key themes and data points in frame this week;

United States:

Tuesday: Monthly Budget Statement

Wednesday: Retail Sales | Business inventories

Thursday: Weekly Jobless Claims

Friday: G20 Meeting – Russia | Industrial/Manufacturing Production | University of Michigan Consumer Confidence

Australia:

Monday: Home Loans | Investment Lending | Value of Loans

Tuesday: RBA Credit card balances/purchases | NAB Business Conditions/Confidence | Westpac Consumer Confidence

Thursday: Consumer Inflation Expectations

China comes to the rescue

The Chinese data pulse continues to beat a little faster than most anticipated, and Friday’s trade data was the latest in a string of data points suggesting the world’s second-largest economy has evaded a hard landing scenario.

Imports to the region swelled 28.8 percent in January and exports surged 25 percent – in part attributed to a flurry of activity ahead of Chinese New Year celebrations.

The total trade surplus narrowed to $US29.15 in January from $US31.62 in December, beating expectations of $US24.7 billion. The surge in import activity is a particularly encouraging sign of domestic demand, and while New Year preparations were no doubt a large contributing factor, the underlying trend remains favorable.

Data on Friday also showed consumer prices eased in January with headline inflation falling to yearly pace of 2-percent, from 2.5-percent in December. Although subdued inflation is generally seen as positive in the context of the governments capacity to further stimulate the economy, most economists’ anticipate price pressures will bounce back in February given a likely surge in demand for fresh food and consumer goods ahead of the lunar New Year celebrations.

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