The Aussie finished lower on the week despite commentary from RBA Governor Ian Macfarlane reiterating sentiment of robust economic growth and increasing inflationary pressures. The commodity-dependent currency was carried lower by diminishing gold prices, but positive results from the coming week of economic data could spark a bullish turn in the AUD/USD. In the meantime, the pair made lower lows for the third consecutive week as it further retraced from 3-month highs.
A speech given by RBA Assistant Governor Battellino will kick of the week for Australian data, giving Aussie longs an opportunity to benefit as he will likely reiterate Governor Macfarlanes remarks regarding the economy. Conversely, surging gasoline prices may have prevented potential buyers from purchasing cars in July, as indicated by New Motor Vehicle Sales. A continuation of declines in the July annual sales figure would mark the seventh month in a row of contraction. The Westpac Leading Index could prove to be disappointing as well, as the RBAs decision to raise rates to 6.00% reverberates throughout the economy, sending consumer confidence plummeting and could potentially damage demand in the housing market as the cost of borrowing jumps. DEWR Skilled Vacancies may continue to narrow in August, in line with the strong employment reports released as of late. Finally, Q2 House Prices are anticipated to rise 1.2% from 1.0% in Q1, putting the annual figure at 4.4%, the highest rate since Q3 2004. A resilient housing sector combined with stellar employment conditions should help to boost consumer sentiment once households recover from the shock of the RBAs rate hike, which should only assist in the expansion of an already flourishing Australian economy.
Aussie gains made mid-week just couldnt hold on despite hawkish rhetoric from RBA Governor Macfarlane during his testimony to the Parliament Committee. Macfarlane said that further rate increases are more likely to happen than a pause due to the economy growing at a reasonable rate and with inflationary pressures coming from abroad. With CPI well over the RBAs target of 2% - 3% at 4% in Q2, the central bank has been left with little leeway to refrain from tightening monetary policy. The banks zeal to raise rates, however, has severely damaged sentiment and sent the August reading of the Westpac Consumer Confidence Index down 16.2% to 90.0 from 107.4. The reality of persistent gasoline prices also made its impact on the reading, especially as turmoil in the Middle East and BPs problems with Alaskan pipeline corrosion have exacerbated oil price concerns. Inflation expectations also grew in August as price pressures spread throughout the economy, including into wages. The Q2 Wage Price Index gained 1.1%, beating the anticipated 1.0% rise and higher than Q1s 0.9%. However, Macfarlane noted in his testimony that the wage price growth is not a cause for concern. By the end of the end of the week, AUD/USD bears were pleased as the pair bottomed out at 0.7551.
