This week has been a reminder that sometimes the bar is set very low for a currency to rally, especially when there has been protracted anticipation of a negative response to a key event suggests Sean Callow, Research Analyst at Westpac.
“Former FBI director Comey confirms President Trump placed pressure on him regarding the Russia investigations. The US dollar and stocks rise. Australia’s economic growth slows from 2.4% y/y to just 1.7%, the slowest pace of expansion since 2009, in the aftermath of the GFC. The Aussie dollar rises.”
“Indeed AUD is the strongest G10 currency over the past week, up about 2% against the US dollar (CAD and NOK are the softest in the G10, with crude oil down almost 5% over the week). This is not a complete surprise to us, inasmuch as we regarded talk of a negative GDP print as excessively gloomy. The 0.3% q/q rise was close to our forecast and at the risk of sounding like the Fed, Q2 is already shaping up as stronger.”
“The forest of cranes in Australia’s eastern capital cities is deemed to have contributed nothing to annual growth. An unusually wet March played a key role, with housing construction -4% in Q1. Resource exports fell a similar amount in Q1, with weather disruptions also in play. Q2 should see a rebound.”
“To be sure, there is still not a lot to cheer in the data, with household spending growth slipping behind population growth, even as the saving rate slides to a low since 2008. But the RBA said that “economic growth is still expected to increase gradually over the next couple of years to a little above 3 per cent.” This added fuel to the AUD/USD recovery from 3 week lows.”
“But the ongoing weakness in iron ore prices seems set to keep a lid on AUD/USD rallies for now. The Fed could play a role too. The contrast between a wary ECB and upbeat FOMC should help Dollar Index stabilize – another reason AUD/USD 0.76 should prove elusive.”