Nothing to love, no saving grace
Fundamental Forecast for Australian Dollar: Bearish
- the the third week of July brings a calmer economic calendar for Australia; there are no events rated “high” on the DailyFX economic calendar.
- TThe Citi Economic Surprise Index for Australia, a measure of how data changes over time, closed the week at +35.8, slightly below its closing level last week at +38.2.
- the IG Customer Sentiment Indexsuggests that the AUD / JPY and AUD / USD rates have a bearish bias.
The hard week for the Australian dollar
Nothing good is happening below. Although July generally brings better performance for the Australian dollar, this did not materialize. the Australian dollarEnded the week at its weekly lows, monthly lows and annual lows. And its performance showed it: the AUD / JPY fell -1.33%; AUD / USD by -1.32%; EUR / AUD added + 0.65%; and GBP / AUD gained + 0.34%. Renewed lockdowns in the face of already dire economic data left the Aussie dollar without short-term positive catalysts.
Australia’s economic calendar calms down
The third week of July brings a calmer economic calendar for Australia; there are no events rated “high” on the DailyFX economic calendar. The July RBA Minutes of Tuesday, July 20 is the most important post of the week. Overall, data trends appear to be weakening relative to expectations: tAustralia’s Citi Economic Surprise Index, a measure of data dynamics over time, closed the week at +35.8, slightly below its closing level last week at +38.2.
For full Australian economy data forecasts, display DailyFX Economic Calendar.
Relatively speaking, RBA is Dovish
Reserve Bank of Australia moves away from counterparts, Federal Reserve hinting at a withdrawal from stimulus, and Bank of Canada and Reserve Bank of New Zealand take definitive action to curtail their purchases of active. But the RBA has been fairly transparent, however, suggesting that it will maintain its stimulus efforts until Australian inflation returns to its target range of + 2-3%; in 1Q’21, it was only + 1.1% annualized.
Reserve Bank of Australia interest rate forecast (July 16, 2021) (Table 1)
As previously stated, “market participants do not seem convinced that the RBA will give in to their yield curve control efforts to keep the policy rate at its current level or lower until at least March 2023.” According to Australian overnight index swaps, there is a 25% chance of a rate cut until December 2021, which is constant over the past month.
Construction of the Australian dollar’s net shorts (Chart 2)
Finally, in terms of positioning, according to the CFTC’s TOC for the week ended July 13 speculators increases their net short positions in the Australian dollar at 28,788 ccontracts, against 24,870 contracts held the previous week. Positioning for the Australian dollar has been increasingly sharply short in each of the past four weeks, and has been net-short since the week of May 25.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist