AUD/USD Fundamental Forecast – August 1, 2016

The AUD/USD soared on Friday morning anticipating stimulus from Japan supporting commodity currencies. Data on Friday morning was supportive of the Aussie which climbed 27 points to 0.7530 with the upcoming RBA meeting in focus. producer prices in Australia advanced 0.1 percent on quarter and 1.0 percent on year in the second quarter of 2016, the Australian Bureau of Statistics said on Friday.

Domestic prices added 0.3 percent on quarter and 0.9 percent on year, while import prices slipped 1.6 percent on quarter and climbed 2.1 percent on year.

These gains were partly offset by falls in the prices received for computer and electronic equipment manufacturing, specialized machinery and equipment manufacturing and fruit and vegetable processing.

Intermediate demand PPI added 0.2 percent on quarter and 0.3 percent on year. Domestic prices gained 0.4 percent on quarter and 0.7 percent on year, while import prices slipped 2.2 percent on quarter and 2.5 percent on year.

The gains were mainly due to rises in the prices received for petroleum refining and petroleum fuel manufacturing electricity, gas and water supply and sewerage and drainage services and oil and gas extraction.

The index declined 0.2% in the first quarter, marking its worst showing since 2012. The annual inflation rate stands at just 1.0%, well below the RBA’s stated target of 2% to 3%. Will this be enough of a factor to prod the RBA into action?

There were no dramatic moves by the Federal Reserve, which concluded its policy meeting on Wednesday. The bank continued to hold the course on interest rates, maintaining levels at 0.25% in a 9-1 vote. The Fed statement sounded upbeat, saying that risks to the economy have receded and the employment market is getting tighter. The Fed added that it continues to monitor inflation levels and noted that the housing sector had improved. Will the Fed make a move and raise rates in September? It appears that the Fed could go either way, and policymakers will make a decision at the September meeting based on the strength of US data. This means that key US numbers, such as Friday’s Advance GDP report, will be under the market microscope, and unexpected readings could lead to strong volatility in the currency markets.

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Upcoming Economic Events that you should be monitoring:

Monday, August 1, 2016

Government Bond Auctions

Date/Time Country Type

Aug 2   JPY                  10-Year JGB Auction                          -0.243%

Aug 2   USD                4-Week Bill Auction                           0.270%