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Australian Dollar (A$) / US Dollar ($) (AUDUSD) Preview

Economist Shayne Heffernan takes a look at the AUD, Parity still in Play

Looking to the week ahead, a focus on monetary policy expectations is likely to see the Aussie start off on a strong note as Chinese Trade Balance figures released over the weekend weigh on RBA rate cut bets. The report showed exports rose 9.9 percent in September, topping economists’ calls for a 5.5 percent increase and yielding the strongest reading in four months. A pickup in overseas demand for Chinese goods bodes well for that economy’s growth profile, which in turn stands to benefit Australia since demand from the East Asia giant is arguably the most significant driver of the latter country’s mining boom.

AUD/USD hit 1.0292 on Thursday, the pair’s highest since October 2; the pair subsequently consolidated at 1.0230 by close of trade on Friday, still up 0.74% for the week.

The pair was likely to find support at 1.0174, the low of October 9 and resistance at 1.0292, Thursday’s high.

The International Monetary Fund has forecast Asian economic growth of 5.9% in 2013, but this week said it sees a one in seven chance of it being less than 4%.

The IMF also cut its forecast for global economic growth this year to 3.3% from 3.5% and warned that a failure by European and U.S. policymakers to tackle current problems could threaten what it called a “slow and bumpy” economic recovery.

Further down the road however, selling pressure is likely to reassert itself. Minutes from October’s RBA meeting are likely to mirror the increasingly worried tone of the policy statement issued in the immediate aftermath of the sit-down. Separately, Chinese GDP data is due to show that the annual growth rate slowed to 7.4 percent in the third quarter, marking the weakest reading since the Great Recession trough at 6.2 percent in the three months through March 2009. Meanwhile, a slowdown in Chinese CPI is unlikely to be as potent of a supportive force as previously considering Beijing has been attempting monetary stimulus via reverse repo operations with little perceptive success for months now.

The Australian Dollar and broad-based risk appetite trends appears to be unraveling. Indeed, near-term correlation studies suggest that the link between the currency’s average value against its top counterparts and the MSCI World Stock Index – a benchmark gauge for market-wide sentiment – has dropped to the weakest since January 2011. This puts the outlook for RBA monetary policy in the spotlight, with rate cut bets threatening to produce losses.

Monday, October 15

Australia is to produce official data on home loans, a leading indicator of the health of the housing sector. The country is also to publish government data on new vehicle sales, a leading indicator of consumer sentiment.

The U.S. is to produce official data on retail sales, the primary indicator of consumer spending, which accounts for the majority of economic activity. In addition, the U.S. is to release data on manufacturing activity in New York state, as well as official data on business inventories.

Tuesday, October 16

The Reserve Bank of Australia is to publish the minutes of its most recent policy meeting. The minutes contain important insights into current and future economic conditions from the bank’s perspective.

The U.S. is to release government data on consumer price inflation and industrial production. The U.S. is also to produce official data on treasury long-term purchases and the capacity utilization rate.

Wednesday, October 17

Australia is to publish an index of leading economic indicators, designed to predict the future direction of the economy.

Later Wednesday, the U.S. is to publish government data on building permits, an excellent gauge of future construction activity, as well as data on housing starts, a leading indicator of economic health. The U.S. is also to produce official data on crude oil stockpiles.

Thursday, October 18

Australia is to publish a report on business confidence, an important indicator of economic health.

The U.S. is to publish weekly government data on initial jobless claims, as well as a report on manufacturing activity in Philadelphia, a leading indicator of economic strength.

Friday, October 19

The U.S. is to round up the week with industry data on existing home sales, a leading indicator of economic health.