Australian Dollar (AUD) Holds Gains Made From Employment Data; CPI Forecast to Fall This Week

The Australian Dollar (AUD) remains under pressure despite some temporary relief it experienced late last week resulting from the surprisingly good employment data. The ‘Aussie’ (AUD) lifted over a percent against the majors last Thursday when it was reported that the Australian Unemployment Rate dropped from 6.3% to 6.1%, with an additional 37,700 jobs added to the economy for the month of March. It has held the gains to date, however this week’s Australian inflation data does not appear favourable.

It is a very quiet start to the week in terms of domestic economic releases, with today being absent of any Australian data being released. We will undoubtedly see increased volatility concerning the Australian Dollar (AUD) as the week progresses, with high tier data being announced locally tomorrow and Wednesday. The buoyancy the AUD experienced late last week may be short-lived however; with economists and investors turn to the RBA Minutes and inflation data for an insight into the likelihood of a second interest rate cut to occur next Month.

Tomorrow the Reserve Bank of Australia (RBA) Minutes of the April Meeting will be released. Close attention will be paid to the reasons why the governing body decided to hold interest rates at 2.25% after giving strong indication that a further interest rate cut is expected. Possibly more importantly is the RBA’s stance on mentioning a timeframe in which the next interest rate is likely to occur. A short timeframe will continue to weigh down the value of the ‘Aussie’ (AUD).

Wednesday will see the inflation levels in Australia being reported on in the form of the Consumer Price Index (CPI). Currently, CPI in Australia is sitting at 1.7%, which is below the RBA’s target range of 2-3%. The forecast is for the annualised CPI figure to fall to 1.3%. Another reading below the target range will warrant the RBA to again cut the interest rate further, making this announcement critical in determining the direction of the Australian Dollar. The CPI release will occur on Wednesday at 11:30 AEST.

Australian Dollar to Euro (AUD/EUR) Exchange Rate Trading Just Below 22 Month High

The AUD/EUR exchange rate is currently trading at 0.7215 at 08:00 AEST, just shy of hitting a 22 month high.

The trend of a weakening Euro has been prevalent for a few weeks now, resulting from the announcement of the European Central Bank’s (ECB) quantitative-easing program. Although the Australian Dollar (AUD) has also felt the downward pressure from falling commodity prices and a recent interest rate cut, the Euro has been declining at a more rapid pace.
Tomorrow evening the German ZEW Survey will provide an insight to economic sentiment and will be influential to the AUD/EUR exchange rate. German and Euro-Zone Manufacturing and Services PMI (Purchasing Managers Index) scheduled for release later in the week, however, this week’s Australian economic releases are likely to cause more volatility to the AUD/EUR exchange rate than the Euro-Zone data.

Terry Finn


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