AUD/USD Monthly Fundamental Forecast May 2012

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Outlook and Recommendation

The AUD/USD  ended the month at 1.0423 but has fallen continuously since the RBA cut interest rates and growth forecast in early May.

The Australian dollar (AUD) is in range-trading mode despite the Reserve Bank of Australia’s unexpected decision to lower its benchmark policy rate by 50 basis points to 3.75%. We forecast AUDUSD to regain an appreciating bias and close the year at 1.09 on the grounds of still supportive interest rate and growth differentials and a high yield target for portfolio diversification. The core group of floating Asian currencies, such as the South Korean won (KRW), the Taiwanese dollar (TWD) and the Thai baht (THB) are also poised to resume an appreciating tone.

In April the Aussie traded as shown below:

Highest: 1.0475

Lowest: 1.0227

Difference: 0.0248

Average: 1.0354

Change %: -0.03

 

The Australian dollar (AUD) has been weighed down by a dovish central bank. However, the market has likely gotten too aggressive pricing in almost 100 bps of interest rate cuts over the next 12-months. Accordingly, as China undergoes a soft landing, the outlook for Australian fundamentals should improve leaving the market scrambling to get long AUD once again. Accordingly, we hold a bullish AUD view, targeting 1.07 by quarter end and 1.09 by year-end. 

Central Bank Name: Reserve Bank of Australia

Date of next meeting or last meeting: May 01

Current Rate: 4.25 % (- 0.25)  (3.75 as of May 1)

Statement highlights of last meeting: The Board eased monetary policy late in 2011. Since then, its judgment has been that, with growth expected to be close to trend, inflation close to target and lending rates close to average, the setting of monetary policy was appropriate. The Board’s view was also that, were demand conditions to weaken materially, the inflation outlook would provide scope for easier monetary policy. At today’s meeting, the Board judged the pace of output growth to be somewhat lower than earlier estimated, but also thought it prudent to see forthcoming key data on prices to reassess its outlook for inflation, before considering a further step to ease monetary policy. On the May 1st meeting the board reduced interest rates by 50bps.

Economic events for the month of May affecting AUD,CNY,JPY,NZD and USD

Tuesday, May 01

00:30

 AUD

 

Interest Rate Decision

3.75%

4.00%

4.25%

 

 

00:30

 AUD

 

RBA Rate Statement 

 

 

 

 

 

10:00

 USD

 

ISM Manufacturing Index

54.8

53.0

53.4

 

 

Wednesday, May 02

08:15

 USD

 

ADP Nonfarm Employment Change

 

177K

209K

 

 

18:45

 NZD

 

Unemployment Rate

 

6.3%

6.3%

 

 

Thursday, May 03

08:30

 USD

 

Initial Jobless Claims

 

380K

388K

 

 

Friday, May 04

08:30

 USD

 

Unemployment Rate

 

8.2%

8.2%

 

 

08:30

 USD

 

Nonfarm Payrolls

 

170K

120K

 

 

Thursday, May 10

21:30

 CNY

 

Chinese CPI (MoM)

 

 

0.2%

 

 

21:30

 CNY

 

Chinese CPI (YoY)

 

 

3.6%

 

 

Wednesday, May 16

19:50

 JPY

 

GDP (QoQ)

 

 

-0.2%

 

 

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About: FX Empire Analyst - Barry Norman

Barry produces a private Daily Market Review newsletter that is distributed around the globe to over 25,000 subscribers and recently published a book on Options Trading that is available from amazon.com

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