Fundamental Australian Dollar Forecast: Bearish
- Australian interest rates are expected to remain on hold this week
- Fourth quarter growth data are due, but may be too historic for the market even if they hold up
- The Aussie looks set to go lower yet
The Australian Dollar market can look forward to a wealth of economic events in the coming week that in more normal times could be expected to really move it. But, with coronavirus rampant and crushing risk appetite, these are far from normal times. It remains to be seen whether even a domestic interest rate decision or official growth numbers will be able to shake the currency away from that one main global story.
The Reserve Bank of Australia is widely expected to leave its key Official Cash Rate on hold at its 0.75% record low for March when it makes the call on Tuesday. Futures markets price such a call as overwhelmingly likely with only an 11% chance that a reduction will come, according to index provider ASX. Futures markets still think a cut is coming alright, but they don’t price it in until July.
Assuming the markets are right what will matter most is the central bank’s tone. Officials have been sanguine but realistic about the virus’ impact on Australia, as well they might be given the country’s myriad economic links to China. Any discernible rise in the worry level may well weigh on the currency.
Will Fourth Quarter Now Seem Too Long Ago?
Official Gross Domestic Product numbers for last year’s final quarter are also due. They’ll be released on Wednesday. Given that the coronavirus’ impact started to be felt after this period it seems all-too likely that even upbeat numbers will be viewed as rather too historic to support the currency. After all, growth calls for this year have already been dialed back in many cases. Goldman Sachs now sees a 2.1% expansion for 2020, rather than the 2.4% it previously backed.
Australia is not alone in seeing forecasts reined in, of course. However, as perhaps the pre-eminent growth correlated currency among the widely traded units, it has much to lose as investors fret the virus’ impact on bottom lines around the world.
Major local lender Westpac looks for a 0.5% quarterly GDP rise, for a 2.1% annualized gain.
Key Chinese numbers are due, too, mainly in the shape of official and private Purchasing Managers Indexes (PMI). If these weaken further then they’ll doubtless be taken as further signs of virus-related difficulties in China, which may well feed back to Australia in the form of lower demand for the raw materials exported in such vast quantities.
Given all of the above, it’s very difficult to get bullish on the Australian Dollar. Bulls’ best hope must probably lie in the possibility that the currency has suffered enough for now. Positive surprises in any of the big numbers might bolster that view and support the currency, if only fleetingly.
However, surprises can’t be forecast and, on the basis of what we can know, it has to be bearish call this week.
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— Written by David Cottle, DailyFX Research
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