Following on from Friday the Australian dollar has kicked off the week under pressure with price action making a break to the downside of 103.5 US cents. Demand for the local unit eroded on Friday after Chinese GDP fell short of expectations to record annual growth of 8.1 percent against the expected 8.4 percent. Local employment data created an inflection point on Thursday but fears of a more pronounced slow-down in China was the dominant influence. Market participants may be well-informed of China's intension to engineer growth sustainability, however fears of a hard-landing scenario remain the key driver and Friday's data does little to silence the skeptics. Meanwhile, the Chinese government has taken further steps to increase the flexibility of the Chinese Yuan announcing widening of the trading band around the official central parity rate. The free trading zone around the daily central parity rate has now been increased from 0.50 percent to 1 percent.
The health of European peripherals will remain under the microscope this week with a Spanish debt action on Tuesday and Thursday. Debt markets are often the best barometer of sentiment and with Spanish and Italian yields approaching pre-LTRO levels, it's apparent the market psyche has taken a negative course. This week will see the G20 finance ministers; the IMF and World Bank reconvene in Washington with the aforementioned Euro-region concerns no doubt a primary discussion point.
Headlining local data this week will be the release of the RBA policy meeting minutes on Tuesday. While Stevens and Co kept benchmark rates on unchanged at 4.25 percent, the ensuing statement erred to a dovish tone with the board noting the pace of output growth to be somewhat lower than earlier estimated, while expressing the need to evaluate forthcoming inflation data to ascertain the viability of an interest rate cut. Subsequent price action on the Australian dollar made clear the markets dovish interpretation with money markets showing an all but certain rate cut in May. In typical style, market participants will be wading through the finer points of the minutes for further clues on the RBA's policy outlook; however with near-term rate cuts well and truly baked into the market we anticipate limited downside for the Australian dollar on the release. Other less valuable local directives this week include new motor vehicle sales, Westpac leading Index, NAB business confidence and import/export price index. Ultimately the week ahead will see the local unit remains at the mercy of global market directives with the reemergence of European concerns a primary stumbling block for risk currencies in general. At the time of writing the Australian dollar is buying 103.3 US cents.