AUD/USD Monthly Fundamental Forecast – March 2016

Outlook and Recommendation

The AUD/USD rallied on Monday the 29^th after Chinese authorities reduced the reserve ratio for banks surprising the markets and giving the Aussie a bump. At the G20 summit at the end of the month China assured markets that they had growth under control and were not looking for a currency war. The Aussie closed at 0.7148 up by 0.9% for February.

Strong individual consumption and construction may offset the negative impacts of decreasing non-residential investment. 4Q15 GDP growth may reach 0.4% with yearly growth rising from 2.5% to 2.6%. The RBA is unlikely to cut rates due to stable economic growth in Australia.

Early this month, the RBA was still confident about the domestic economy, assuming that restructuring would be successful and the non-mining sectors would increasingly gain traction. The set of data published since then is likely to have dampened the central bank ‘s optimism though. The latest labor market report, in particular, came in disappointing as the positive trend since mid-2015 failed to continue. Unemployment rose and employment dropped considerably. Moreover, last week’s investment report contained no more than sparse indications of an increase in non-mining investment. The RBA will thus have to remain patient – not an easy task given stronger headwinds from the global environment. Market unrest with regard to the developments in China is also affecting Australia due to its close ties to the Chinese economy. The RBA ‘s concern over the strengthening AUD, which would render a recovery more difficult, has produced rate cut expectations on markets. However, the bar should be high for another rate cut as the bubble on the property market is impossible to ignore and lower interest rates would further drive credit-financed demand. Therefore, we expect the RBA to remain on hold in March.

China’s central bank surprised global markets and cut requirements the last day of the month leaving the Aussie hanging ahead of the PMI data due shortly.

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.

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March 1, 2016