Outlook and Recommendation

The Australian dollar AUD/USD will remain well supported over the forecast horizon. Firm external and improving fiscal account fundamentals, strong ties to Asia and exposure to highly bid commodities all work in favor of the AUD. The currency's closing in on the multi-year peak levels observed in mid-2011 is noteworthy particularly in the face of a 7% y/y fall in Australia's terms of trade, with rising demand for the country's bonds in the midst of the eurozone sovereign crisis a likely explanation. Headline inflation at 3.1% y/y has converged towards the Reserve Bank of Australia's (RBA) 2-3% target, as core goods inflation containment is backed by a strong AUD. Core services items, however, continue to advance at the strongest pace in three years, pointing to persistent local pressures, as implied by favorable conditions within the mining sector where investment spending continues to propel ahead. While labor markets are less strained in non-mining activities, there is no evidence of slack, with the unemployment rate broadly steady at 5.2%. The downtrend in inflation and an uncertain global outlook, combined with evidence of a cooler real estate market, opened the door for looser monetary conditions. After lowering the cash rate twice to 4.25% RBA authorities left the benchmark rate unchanged the last time around, judging current conditions in favor of an economic expansion broadly in line with trend

Early 2012 gains in the Australian dollar (AUD) slowed in February as the tailwind of liquidity provided by global central bank easing has abated. Although AUDUSD remains at the upper end of its six-month range, near 1.0775, further upward movement has been limited as a result of financial sector credit downgrades, cautious central bank rhetoric, and a flare-up in political tension. Despite the limited movement, investors are bullish AUD with CFTC data showing a net long US$8.0 billion position. Expect continued AUD appreciation with a Q4 2012 target of 1.09. holding tight at the end of the current quarter in the upper 1.07 to low 1.08 range

Central Bank

The Reserve Bank of Australia surprised markets by holding rates steady in February, defying rate cut expectations. Since then, the data have been relatively solid and the global environment has improved modestly, meaning little reason to expect a move in March. Indeed, interest rates are close to their medium-term average and with growth expected to be close to trend and inflation close to target there's no urgency to act.

Official Rate: 4.25% • Quantitative Easing: No • Last Decision: February 7, unch • Next Decision: March 6, .25 basis point

Historic Chart

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March Major Economic Events

 

country

date

name

forecast

previous

Australia

20120306 22:30:00

AiG Performance of Construction Index

 

39.8

Australia

20120307 00:30:00

Gross Domestic Product (QoQ)

0.70%

1.00%

Australia

20120307 00:30:00

Gross Domestic Product (YoY)

2.30%

2.50%

Australia

20120308 00:30:00

Employment Change s.a.

 

46.3K

Australia

20120313 00:30:00

National Australia Bank's Business Con

 

4

Australia

20120313 23:30:00

Westpac Consumer Confidence

 

4.20%

 
 
 
 
 

USA

20120309 13:30:00

Nonfarm Payrolls

207K

243K

USA

20120309 13:30:00

Unemployment Rate

8.30%

8.30%

USA

20120313 19:00:00

FOMC Minutes

 
 

USA

20120316 12:30:00

Consumer Price Index (YoY)

 

2.90%

USA

20120316 12:30:00

Consumer Price Index Ex Food & Energy

 

2.10%

USA

20120329 13:30:00

Gross Domestic Product Annualized

 

1.80%

USA

20120329 13:30:00

Gross Domestic Purchases Price Index

 

2.60%

AUD/USD Pivot Points (Time Frame: 1 Day)

 

Name S3 S2 S1 Pivot R1 R2 R3

Classic
1.0636
1.0681
1.0707
1.0752
1.0778
1.0823
1.0849

Fibonacci
1.0681
1.0708
1.0725
1.0752
1.0779
1.0796
1.0823

Camarilla
1.0712
1.0719
1.0725
1.0752
1.0739
1.0745
1.0752

Woodie's
-
1.0676
1.0696
1.0747
1.0768
1.0818
-

DeMark's
-
-
1.0765
1.0746
1.0694
-
-