AUD / USD looks to RBA decision after US nonfarm wage data

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AUSTRALIAN DOLLAR FUNDAMENTAL FORECAST: NEUTRAL

  • AUD / USD rallied on strong local data and weak USD
  • RBA meeting on Tuesday key for markets looking for bearish signals
  • Goods giving missed messages. Wsick USD direction dominate AUD / USD?

The Australian dollar rose during the week as second quarter GDP data beat expectations and trade data showed exports increased more than expected in July. The second quarter GDP figure stood at 0.7% q / q, beating the 0.4% forecast. Trade data showed a surplus of AU $ 12.1 billion for July compared to ten billion that the market was looking for.

The second quarter GDP impression is in the rear view mirror as the impact of the Covid-19 Delta variant is not included in the data. New South Wales, the most populous state, entered detention in the last week of June. In July and August, more states were locked down, restricting movement for two-thirds of Australians.

Trade figures revealed the economy’s dependence on commodity exports. Iron ore alone accounted for A $ 26.6 billion in sales to China in July. Coal and natural gas also contributed significantly, but there was a divergence between the prices of iron ore compared to coal and natural gas. Iron ore has fallen dramatically as China cuts its steel production, while natural gas and coal have increased as demand for energy has increased.

With the disparate commodity price action, the RBA meeting on Tuesday is gaining more importance for the Australian dollar. At the July monetary policy meeting, the board announced that it would reduce government bond purchases from AUD 5 billion to AUD 4 billion per week in September. At the August meeting, the board said that given the changed circumstances around Delta, they would reconsider the reduction at the next meeting.

Despite good progress in vaccination rates, the situation around Delta infections has deteriorated and restrictions remain in place. The RBA has previously said it expects a significant rebound in economic activity once the lockdown ends later in the year.

The RBA has also previously said that fiscal policy is a better tool for temporary and localized income cuts rather than monetary policy. This was interpreted as the fact that the RBA preferred to cancel the purchase of bonds as soon as possible.

The uncertainty around the AUD / USD is not confined to RBA stocks, with movements in the US dollar playing out across all assets. Rising demand for risky assets may undermine the U.S. dollar tied to safe-haven securities, and we are seeing stock markets hitting new all-time highs on many exchanges.

The markets’ perception of what the Fed can say and ultimately do, in the wake of the nonfarm wage data, suggests that more solid data will be needed to keep the taper train on track. Stopping the weakening of the USD will depend on signs that the US economy is dynamic enough for the Fed to act by reducing stimulus.

AUD / USD, LOWER IRON ORE, HIGHER COAL AND NATURAL GAS

Graphic vscreated in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

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