Australian dollar lifts to 3-day high on confidence boost
The Australian dollar rose to a three-day high today as improved domestic business confidence data sparked a further recovery after it hit a two-week low last week.
National Australia Bank’s Business Confidence Index rose a point to positive eight points in June as firms shrugged off a sharp deterioration in consumer confidence following the May federal budget. Business conditions rose three points to positive two index points.
At 5pm (AEDT) the Aussie dollar was trading at US93.88c, up from US93.58c at the same time yesterday.
Last week, the exchange rate fell after the trade deficit soared and Reserve Bank of Australia governor Glenn Stevens warned that investors are underestimating the likelihood of a significant decline.
Adding to downward pressure was a rise in the US dollar after strong US jobs data. Exporters bought the pullback and the speculative community covered short positions, but analysts were divided on whether the Australian dollar had the legs to break the eight-month high of US95.06c struck last week, with domestic employment data looming on Thursday as a potential hurdle.
“Exporters had already started to give up on any near term weakness when we were above US95c last week, so there was certainly some buying on the dip, and obviously we had a surprising pick-up in business confidence today, although the details weren’t so rosy,” said Ray Attrill, Co-Head of FX Strategy at National Australia Bank.
“The short-term speculative market had also got itself a little short after governor Stevens’ comments, so they were vulnerable to a squeeze. There’s also been no pick up in volatility, so people have been saying they can’t afford to be short because they are paying away the carry [interest rate differential].”
Mr. Attrill said Thursday’s employment data could be the bigger influence on the Aussie dollar this week; his firm expects the unemployment rate to rise to 6 per cent versus a market consensus of 5.9 per cent.
“If unemployment were to print 6 per cent, that could get the interest rate market betting on another cut, and I think that could see us break the low we saw last week,” he said. “That’s the single best hope for a push lower, barring anything from the US side.”
National Australia Bank expects the Aussie dollar to fall to US90c by September and US85c by December.
Commonwealth Bank of Australia maintained a US97c year-end forecast for the Australian dollar, but “while we are optimistic about AUD/USD, it will not increase in a straight line to US97c by year end and may not be trading at US97c when individual importers need to pay their suppliers,” CBA currency strategist Joseph Capurso said.
“In the current market environment, spot is well above average, forward points are more expensive than average while options are much cheaper than average. We conclude than now is an unusually opportune time for Australian-based importers, or participants that want to protect themselves against a fall in AUD/USD, to hedge currency risks using options rather than forwards.”
Improved Australian business confidence for June might prove temporary as the new orders-to-inventories differential deteriorated, exporters’ sales were weak and hiring intentions fell into negative territory, JP Morgan economist Ben Jarman noted.
“With respect to monetary policy, today’s numbers are consistent with our view that rate hikes are a long way off,” Mr Jarman said.
“As to whether the broad deterioration in the data through midyear will force a move to an explicit easing bias, we do not view that as the base case scenario.”
Source: theaustralian
