The Australian Dollar has been experiencing a volatile week due to mixed results out of US, UK and the Euro-Zone proving substantiation to the International Monetary Fund (IMF) Growth Forecast Report. This report released last week indicated concerns for the growth of the global economy.
National Australia Bank senior economist Spiros Papadopoulos said there is ‘further concern for the global economy overnight after poor data in Germany, Europe, the UK and the US’.
German ZEW Economic Sentiment report was released last night, which is considered a leading indicator of economic health for the German economy. The result for the month of October was -3.6, a substantial fall from the September result of 6.9. This result is especially significant as it has crossed the optimism/pessimism marker of 0.0 for the first time in almost two years.
Spiros Papadopoulos stated that ‘the German economy is losing traction very quickly and there is a real prospect that it could contract again in the third quarter’. The German Government has adjusted its growth forecast for 2014 from 1.8% down to 1.2% and a considerable reduction for 2015 from 2.0% all the way down to 1.3%. This is significant news for the Euro-zone as a whole as Germany is considered the powerhouse of the European Economy.
The UK Consumer Price Index was also released overnight. CPI is considered the most important inflation data indicator for the Bank of England, with figures providing validation for Interest Rate changes. The result was forecast for 1.4% which would have been a reduction on the previous result of 1.5% however the actual result was even weaker than expected at 1.2% which is an especially disappointing result for the UK economy. The AUD made ground against the GBP to a high of 0.5492 overnight and is currently trading at 0.5481 as of 8:00 AM AEST today.
Reserve Bank assistant Governor Guy Debelle, spoke yesterday at the 6th Annual Australian and New Zealand Investment Conference. Whilst the Australian Dollar has lost considerable ground against all the majors in recent weeks he warned that this decline was on a ‘trade weighted basis only.’ He reconfirmed the opinion of the RBA is that the Australian Dollar is still overvalued. “The Australian dollar is still higher than most conventional estimates of fundamentals would indicate, notwithstanding its recent decline.”
Debelle also warned for the potential of a violent market crash, making comparisons to the 1994 global bond market crash. Debelle stated that ‘the next sell-off, could be relatively violent when it comes’.
Today we have another day of high level data indicators out of most of the majors including CPI figures for China and Westpac Consumer sentiment for Australia. The commencement of the European session of trading tonight will provide the release of the Unemployment rates and Average Earning Index for the UK and over in the US we have Core Retail Sales and PPI Data. With such a vast array of data due for release within the next 24 hours, we are likely to see high volatility for the AUD against all the majors.