AUD/USD Fundamental Forecast – June 2, 2016

The AUD/USD climbed to .7298 before settling at .7273, up 0.0042 or 0.58%, after Australia’s first quarter GDP beat expectations. The nation’s economy grew 3.1 percent (YoY) in the first quarter of 2016 versus 2.8 percent expected and 2.9 percent in the fourth quarter (4Q) of 2015. This was the fastest pace of yearly expansion since the third quarter of 2012.

The report also showed that quarter-over-quarter, Australia’s gross domestic product decreased 1.1 percent in the 1Q versus 0.8 percent expected and 0.7 percent in the 4Q. This marks the fastest pace of quarterly expansion since the 1Q of 2012.

The news also drop up the Australian 2-year government bond yields with overnight index swaps pricing in at least one RBA rate cut over the next 12 months. This suggests that investors have reduced the chances of a central bank cut over the near-term.

The upbeat data shook the market’s expectations for another rate cut in interest rates this year. A case can be built for rates to be on hold at 1.75% in June and July, awaiting the July 2 election and Q2 consumer price index report on July 27.

The healthy GDP figure gives the Reserve Bank of Australia (RBA) room to wait to see whether inflation picks up before deciding if another rate cut is needed. In May, the RBA reduced the cash rate to a record low 1.75%, citing disturbingly low inflation. Investors are now giving a mere 6% chance of a follow-up cut next Tuesday from about a 75% chance just after the May cut.

Although the bias will be on the long side today, there is room for profit-taking because of the size of the two-day rally. Short-term overbought conditions as well as general worries about Friday’s U.S. Non-Farm Payrolls report and its potential impact on a U.S. Federal Reserve rate hike in June or July will likely encourage position-squaring, or at least put a lid on the rally.

FxEmpire provides in-depth analysis for each asset we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more up to the data analysis and information in our weekly reports, which covers the current week and are published by Sunday before the new week begins. Daily we share any new events, forecasts or analysis that affect the current day. To achieve a full accurate understanding it is important that you study all of our data and analysis as a whole.

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Upcoming Economic Events that you should be monitoring:

Thursday, June 2, 2016

Government Bond Auctions

Jun 01 10:30 Denmark Holds bond auction

Jun 01 11:30 Germany Eur 4bn 0% Apr 2021 Bobl

Jun 01 11:30 UK Gbp 2.75bn 1.5% 2021 Gilt

Jun 01 17:20 Sweden Announces details of bond auction on Jun 08

Jun 02 10:30 Spain Holds bond auction

Jun 02 10:50 France Eur 8-9bn 2.25% May 2024, 0.5% May 2026 & 3.25%

Jun 02 11:03 Sweden Sek 0.5bn 0.125% 2019 I/L & Sek 0.5bn 0.125% 2026 I/L bonds

Jun 06 13:00 Norway Details of bond auction on Jun 08

Jun 07 11:00 Netherlands Eur 4-6bn Jan 2022 DSL

Jun 07 11:00 Austria Holds bond auction

Jun 07 11:30 Germany Holds I/L bond auction

Jun 07 11:30 UK 4.5% 2046 Gilt

Jun 08 11:03 Sweden Holds bond auction

Jun 08 11:05 Norway Holds bond auction

Jun 08 11:30 Germany Eur 5bn Jun 2018 Schatz

Jun 08 17:20 Italy Announces details of bond auction

Jun 09 11:30 UK 0.125% 2036 I/L Gilt

Jun 09 17:20 Sweden Announces details of I/L auction on Jun 16