Fundamental Australian dollar forecast: bearish
- AUD / USD has recovered some of its contagious losses
- However, this week brings little local economic news
- Which will not be very comforting
The Australian dollar faces a week of very limited domestic economic data, so it’s all too likely to remain at the mercy of global risk appetite. These days, coronavirus titles will be in charge.
The number cabinet is not entirely bare. The Reserve Bank of Australia will not be heard after last week’s decision to leave interest rates alone for May. The Key Official Cash Rate has remained at 0.25% and appears to remain there for a long time.
The coming week will see snapshots of business and consumer confidence. The most important publication will be the official employment statistics for April. They arrive Thursday.
The March figures seemed surprisingly resilient to the contagion that had seen unemployment soar elsewhere. However, the investigation period missed the imposition of various economic stops which are very likely to appear in the figures to come.
That said, the Australian dollar market should be prepared for bad news. The Treasury announced on April 14 that the unemployment rate should almost double in the first half of the year, to 10% from the current level of 5.1%. Meanwhile, the RBA baseline gross domestic product is expected to drop 10% in the first half and 6% in 2020e.
Growth-correlated assets such as the Aussie have posted solid gains since March thanks to massive monetary and fiscal action in developed and emerging economies aimed at warding off the worst economic effects of the coronavirus. The prospect of a gradual exit from the lock-up was also encouraging.
However, the question now is how these resilient assets will turn out to be the ugly numbers that still remain in the pipeline, of which the next Australian labor market report will likely be a clear example.
Although the overall appetite for market risk is extremely difficult to assess, terribly weak data should not see the bulls come out strong in the long term. So this is again a cautiously bearish call for the Australian dollar.
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— Written by David Cottle, DailyFX Research
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