AUD/USD Fundamental Analysis – October 6, 2015 – Forecast

Analysis and Recommendation:  The AUD/USD finished the Asian session on an up note as investors continued to respond to Friday’s bearish U.S. Non-Farm Payrolls report. The Aussie closed against the Greenback at .7069, up .0018, or 0.25%.

Last week ended with the U.S. Labor Department issuing its latest report on September labor conditions that was described as “disappointing across the board”. The report showed the economy added only 142,000 jobs in September. This number was well below the pre-report estimate of 202,000 jobs. Unemployment held at 5.1% and Average Hourly Earnings were unchanged. Traders were looking for a 0.2% increase. Non-Farm Payrolls for August were downwardly revised from 173,000 to 136,000.

The Fed has been watching the job market closely for clues about when it would be appropriate to raise interest rates for the first time since 2006. The number missed so badly that expectations for a rate hike in 2015 have cooled. According to the Federal Funds indicator, traders have now pushed the possibility of a rate hike into March 2016.

With the U.S. jobs report out of the way, the focus will return to this week’s Reserve Bank of Australia monetary committee decision. Pressure is mounting on the Reserve Bank of Australia to cut interest rates at its next monetary policy meeting on October 6. The main reason for the cut is the bearish report by the International Monetary Fund that forecasts falling growth for commodity exporters, including Australia.

The RBA’s benchmark interest rate currently sits at 2 percent, following two previous cuts this year. Several economists say a move by the end of 2015 or in early 2016 is not out of the question. Some say there will be two rate cuts by the end of next year.

At its meeting on October 6, the RBA is also likely to curtail its current growth forecast because it’s too optimistic.  With a U.S. rate hike off the table perhaps until March 2016, the RBA could cut rates at this meeting or wait until closer to the end of the year. The decision could also be influenced by whether the People’s Bank of China decides to implement another round of stimulus.

Look for a bullish tone today as investors are likely to continue to react to the weak U.S. jobs report. The weak report is not likely to lead to a shift in Fed policy just a delay in the rate hike. There is still a divergence between the Fed and the RBA so gains are likely to be limited. If the RBA decides to cut rates then look for weakness throughout the week.

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 up to the data analysis and information in our weekly reports.

Today’s economic releases:

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Upcoming Economic Events that you should be monitoring:

Tuesday, October 6

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Government Bond Auctions

Date Time Country

Oct 06 11:10 Austria Holds RAGB bond sale

Oct 06 11:30 UK 4.5% 2034 Gilt auction

Oct 06 19:00 US Holds 3-year note auction

Oct 07 11:30 Germany Eur 4bn Aug 2025 Bund

Oct 07 16:30 Sweden Announces details of auction on 14 Aug

Oct 07 19:00 US Holds 10-year note auction

Oct 08 11:03 Sweden Holds I/L bond auction

Oct 08 17:30 Italy Announces details of BTP/CCTeu on 13 Oct

Oct 08 19:00 US Holds 30-year bond auction