The Australian Dollar is likely to remain relatively stable for the first part of this week, as locally we have a quiet week of economic data. During Monday’s session the AUD was range bound against most of the majors with no significant data out during our session.
The offshore session overnight, was relatively quiet with the only high level data out of the majors in the form of German IFO Business Confidence. This report is considered a leading indicator of economic health as businesses will react often more quickly than consumers to economic conditions, which can indicate future sentiment of consumers. The follow through effect being hiring, spending and investment. The result was weak at 103.2, a figure lower than the expectation of 104.6. The result for September was 104.7, which continues the decline that commenced in April 2014. The IFO President Hans Werner Sinn said at the news release that ‘the outlook for German economy deteriorated once again’.
German data is of particular significance to the Euro-Zone as the largest economy within the currency zone. The economic health of Germany has a clear impact on the wider European economy, especially as many of the other countries including Italy and France are currently struggling with recession. There is growing concern that Germany will soon follow and dip into recession.
The reaction to this weak confidence figure was not as substantial as it could have been on the Euro, due to some positive sentiment found from the release of the European central Banks stress test. The ECB said that 13 banks in the Euro-Zone showed shortfall out of the 130 big banks that were under review. This provided some level of confidence to investors that the Euro-Zone banks have the ability to ride out the threat of recession in this area.
BBC World Service economic correspondent Andrew Walker says concerns about banks were a central element in the euro zone financial crisis and in some countries, their weakness remains a factor holding back economic growth.
We expect to have a subdued trading session today, as most investors wait with anticipation for the US Federal Open Market Committee meeting Wednesday during the offshore session. It is expected that the Interest Rate will be left on hold, however it is anticipated that the Fed will announce the end to the bond-buying program. Regardless of their decision on this, due to the level of speculation on this subject it is likely to cause a high level of market volatility.