Holding in a solid uptrend for the week, the Australian dollar held a firm bid against the US dollar to bring the pairing just south of 0.7670 by last weeks close. Positive indicators released over the period reinforced speculation that the RBA was seeing greater scope for additional hikes, and an array of data scheduled for the coming days should do little to dull the idea.
Monday mornings release of TD Securities inflation index should theoretically start the week out with a bang, but low liquidity as a result of the US Labor Day holiday could leave the Aussie stagnant until Tuesday morning. The TD data is likely to show that inflation pressures continued to mount in August amidst near-record low unemployment of 4.8% and rising wages. The employment data trend should remain impressive upon release of ANZ Job Advertisements, but the change and rate numbers due out later in the week will give traders a more tangible number to deal with. In August, 10K more people are projected to have joined the labor force following last months substantial gain of 50.7K, leaving the unemployment rate at a stellar 4.8%. With so many Australians in the work force, wages have improved and are likely to fuel demand for housing, as the number of approvals to build or renovate houses and apartments is predicted to rise for the third month in July by 0.8%. Australia's rental vacancy rate is at a nine-year low after building slowed last year. This is pushing up rents and encouraging investors to return to the market, even as the central bank raises interest rates to stem inflation. While consumers should appear to be doing well in the economy, the AiG Performance of Services Index and the Westpac Survey of Industrial Trends will give a clearer picture into how businesses are dealing with higher borrowing rates and as of yet stubbornly expensive energy prices. On Tuesday, the RBA is widely expected to hold rates at 6.00% when they announce their overnight cash target, but traders will certainly be looking for hawkish commentary policy members for clues on whether speculation surrounding a 6.25% rate in October is justified. If the RBA is neutral on rates, as anticipated, it could be a result of second quarter GDP figures, which are predicted to soften to 2.8% year over year from 3.1%, but rise a healthy 0.9% on the quarter. Trade was hurt significantly in the first half of the year as cyclones closed ports, mines, and oilrigs, subsequently curbing shipments and denting growth. The trade balance set to be released early Friday morning is for July, so the data will not reflect the issue. The deficit is anticipated to narrow to a A$700 million deficit due to a pickup in both export prices and volumes, especially from the mining sector.
Data out of Australia was resilient last week, with the Conference Board leading indicator gaining 0.4% in June versus Mays contraction of 0.1% as building approvals, money supply, and rural good exports led the rise. Similarly, construction work done in the second quarter jumped 3.6% against 1.4% expected. This increase is far higher than the first three months downwardly revised reading of 0.1% and highlights the material growth in building, as mentioned above. Conversely, sales of newly built homes dropped 3.6% on high interest rates, which bumped up borrowing costs and kept potential buyers away. In other releases on Thursday morning, while business investment failed to meet expectations, private capital expenditures on equipments, building, and plant was still growing at a steady 1.1% clip in from April to June, and lending to companies jumped a record of 14.8% year over year in July. Miners and energy producers have been spending billions of dollars to expand amid surging Asian demand and rising commodity prices. The AiG Performance of Manufacturing Index highlighted this as well, with the figure moving up over the 50 boom/bust level to 52.1 in August from 49.7 in July. Furthermore, the current account deficit slimmed down to a A$13.239 billion shortfall from a revised A$13.631 billion shortfall as a result of the same booming export growth. With trade and business set to keep the Australian economy not only on the path to further expansion, but potentially higher interest rates as well, the currency held its own and closed out the week well below the range top that has formed at 0.7700.
