Weekly Market Review 8-14/06/2015

Money Time for the Aussie

This week, investors will once again concern themselves with the Aussie dollar, the wild card of the Asia Pacific FX space. The Aussie dollar has been under selling pressure ever since the RBA cut its benchmark rate, once in March and again in May, to as low as 2%. Still, with every upcoming market moving event for the Aussie, whether it’s an RBA rate decision, growth and inflation data or just a speech by Glenn Stevens, the RBA Governor, investors are on the edge of their respective seats, still puzzled about what’s next for the Aussie.

Will the Aussie Tides Turn?

When the RBA slashed its benchmark rate to 2% in May, it was seen as a sign that bearish times for the Aussie could be on the horizon. Yet, over the past few weeks some possible “green shoots” for the Australian economy have appeared. GDP growth surprised for the better, reading 2.3% YoY and consumer inflation expectations were raised to 3.6%. On top of that, in the June meeting the RBA decided not to change rates, taking instead a wait-and-see approach.

Despite the foregoing, the situation for the Aussie still isn’t all that clear. True, while the past weeks’ data has shown some possible signs of stabilization, the RBA left the door open for more easing. As such, the Aussie is not out of the woods yet, and more improvement in the data is needed to pull the currency back from its lows. That brings us to this week’s Aussie release, which could help the Aussie form a bottom or push it into another steeper slope. After all, with the RBA on standby to slash rates further, even the slightest disappointment could mean bad news for the Aussie.

During this week, investors will watch three key indicators that could tilt the Aussie Dollar either way. The first is not a release on the Australian economy per se but it is still very relevant. As is well known China is the biggest driver of Aussie growth. Thus, the Chinese Dragon’s health is critical for the Australian economy to accelerate back and for the Aussie to recover. China’s CPI, due to be released on Tuesday, will reveal if China is stabilizing or continuing to slow. If Chinese CPI (MoM) improves after falling for two consecutive months, that will be considered positive for the Aussie. Even a 0% reading could be considered mildly positive, but anything other than a rise will be negative for the Aussie.

The second key event will be the speech by RBA Governor Glenn Stevens. Though the RBA minutes already revealed the RBA’s dovish bias, it will be interesting to hear how the Governor relates to latest data. If he suggests that rates could remain on hold for the time being, that could help the Aussie to stabilize.

Then, the release of Aussie unemployment will follow as the third indicator. After last month’s nudge up to 6.2% from 6.1%, Aussie bulls will want to see the unemployment rate either remain at 6.2% or, preferably, nudge back lower. An increase in the unemployment rate would spell trouble for the Aussie, which could then quickly nose dive.

US Retail Sales: Never Boring

US economic growth has been softening for a while and April’s read on retail sales presented a rather dismal view of the US consumer. Now, investors on Wall Street and dollar bulls hope to see May’s US Retail Sales posting gains. If Retail Sales rebound, preferably by 0.3% or more, that will be considered upbeat for both the US dollar and Wall Street indices.

Down to Business

With the Aussie dollar, investors will want better-than-expected readings across the board and a less dovish RBA to allow the Aussie to bottom before perhaps rebounding. Anything else and the chance of a further plunge in the Aussie dollar is more than probable. In the US, if retail sales return with a rise by more than 0.1% (and preferably by more than 0.3%) it will be positive for the dollar and Wall Street.

On the Plate

German Exports(Monday) – Will shed light on the performance of the German export engine.

Chinese CPI(Tuesday)- If Chinese CPI will return to rise MoM it will be positive for the commodities space, the Aussie and the Kiwi.

UK Inflation Report(Tuesday)- Is expected to strongly affect the Pound Sterling as well as the FTSE100. If inflation expectations are revised up it will benefit the Sterling and could be negative for the FTSE100.

RBA Governor Speaks (Wednesday)- If the governor will suggest the RBA is turning less dovish the Aussie could begin to form a bottom.

Australia Unemployment (Thursday)- If unemployment in Australia falls back to 6.1% it will be considered Aussie positive. If it holds at 6.2% it may be considered only mildly positive while a gain in unemployment will be viewed as highly negative for the Aussie.

US Retail Sales(Thursday)- If US retail sales posts a gain Month on Month it will be considered positive both for the dollar and Wall Street.

Japan Tertiary Industry Index(Friday)- If the index posts a gain it will be an upbeat sign for Japan and could provide some support for the Yen against its peers.

Chart of the Week- GBPUSD

GBPUSD weekly

Economic Calendar:

Real Time Economic Calendar provided by Investing.com.