AUD/USD Monthly Fundamental Forecast August 2012

Outlook and Recommendation

The AUD/USD  -traded as high as 1.0538 in July closing the month at 1.0482. AUD has rallied a full 9% since its year-to-date low of 0.9582 on June 1st. In tandem with this shift, the CFTC reports that the net AUD position has shifted from a net short to a net long of US$2.7 billion (as of July 24th); while the option’s market has positioned for AUD upside. The combination of risk aversion, RBA policy and the outlook for China are the most significant near-term drivers for AUD. We expect it to be a relatively volatile ride and hold a Q3 2012 forecast of 1.02.         

On the domestic front, the Australian economy has shown some resilience in recent months. Looking forward, growth prospects remain linked to developments in Asian emerging-market growth dynamics and global commodity markets. Building approvals posted an unexpected gain (10.2% on a yearly basis) for a second straight month in June after more than a year of declining activity in the residential construction sector. Business credit has also picked up in the recent months, buoyed by recent interest rate cuts by the central bank and the continued investment drive in the mining sector. Meanwhile, inflation fell again in the three months to June, sliding to 1.2% y/y from 1.6% in the first quarter, and marking the slowest pace since the second quarter of 1999.

FxEmpire provides in-depth analysis for each currency and commodity 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 recent analysis and information in our weekly reports and we provide daily updates and outlooks.

Central Bank Name: Reserve Bank of Australia

Date of next meeting or last meeting: Aug 07

Current Rate: 3.50 %

Statement highlights of last meeting: At its latest meeting on July 5^th 2012, the Board decided to leave the cash rate unchanged at 3.50 per cent. Growth in the world economy picked up in the early months of 2012, having slowed in the second half of 2011. But more recent indicators continue to suggest weakening in Europe and a slower pace of growth in China. Conditions in other parts of Asia have recovered from the effects of last year’s natural disasters, but the ongoing trend is unclear and could be dampened by the effects of slower growth outside the region. The United States continues to grow at a modest pace. Commodity prices have declined, which is helping to reduce inflation and providing scope for some countries to ease macroeconomic policies. Australia’s terms of trade have peaked, though they remain historically high.

 Economic events for the month of August affecting AUD, JPY and NZD