AUD Analysis – 9th of February

Our bias for the Australian dollar is currently neutral in the context of RBA being on hold and CPI and employment metrics showing positive signs for the Australian economy. Further, the low AUD exchange rate is helping the economy survive the low price of commodities, namely iron ore and copper. It is important to note that recent global uncertainty, along with the continued rout in the commodities markets have put extra pressure on the AUD.

AUD Analysis

Interest Rate

Official Cash Rate: 2.00%

Last Change: May 6, 2015 (2.25%)

Expected Future Change: No Change

Next release: March 1

Inflation

Inflation Target: 2-3%

Period: 2015

CPI: 1.7% Prior: 1.5%

Trimmed Mean CPI: 2.1% Prior: 2.1%

Next Release: April 27

Employment

Period: December

Employment Change: -1000 Expected: -10,000

Unemployment Rate: 5.8% Expected: 5.8%

Next Release: February 17

Growth

Period: Year ending September 30

GDP: 2.5% Expected: 2.4%

Next Release: March 2

The AUD has become a fundamentally neutral currency lately, however it has seen recent pressure due to falling commodities and poor Chinese data, as well as from market wide risk-off sentiment due to global concerns. From a domestic point of view data has been solid with the jobless rate remaining below 6% and CPI steady.

The Reserve Bank of Australia kept rates on hold at 2% at February 2 as was expected. The statement was largely a reiteration of the prior statement. Committee members observed that the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand. The Board will continue to assess the outlook and whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target. The RBA noted that the Australian dollar was adjusting to the significant declines in key commodity prices. Inflation remains within the central banks 2% to 3% target range, but at a little lower level than expected.

Inflation for the fourth quarter of 2015 was steady at 1.7% for the headline and 2.1% for the Trimmed Mean. The RBA prefers to focus on the latter in times of oil price volatility and the measure indicates underlying inflation is within the Bank’s target range albeit at the lower. This afforded the RBA some dovish rhetoric in the February statement, proving their readiness to ease if necessary.

Employment figures for December came in better than consensus, declining 1K rather than the 10K expected, and the number of new jobs added in November was revised upward to 74.9K from 71.4K. The December unemployment rate was 5.8%, down from an upwardly revised rate of 5.9% in November. The December participation rate was down 2 tenths to 65.1%.

Gross domestic product for the third quarter beat expectations at 0.9% for the quarter, with expectations of 0.7% and Q2 revised up to 0.3% from 0.2%. Year on year growth was at 2.5% versus estimates of 2.4%. The beat on expectations was supportive of the AUD.

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