The Australian dollar declined early in the week only to make back the losses on dollar weakness towards the end. Hitting major support at the 0.7450 figure, the major currency has rebounded back almost 100 basis points in three consecutive sessions. Bolstering the move is renewed sentiment of potential rate hikes as early as the beginning of fall by the Reserve Bank of Australia.
With inflationary pressures continuing to loom and a rebound in economic prospects, speculators are betting that Governor Ian McFarlane will have no choice but to raise rates once again to curb price increases. Coincidentally, the weeks data is likely to add to the overall sentiment as the market anticipates key inflationary reports. First, producer prices for the second quarter are expected to continue their current upward momentum. According to the previous quarters survey, producer prices rose 0.8 percent, bolstered by higher commodity prices with many manufacturers passing on the higher costs. The expected increase would follow in line with the current uptrend witnessed over the past year and a half, continuing suggestions that inflationary pressures remain an imminent threat to the Pacific economy. Currently, expectations are for a 1.1 percent surge in producer prices. Subsequently, the increases are expected to filter through to the consumer level. Rising 0.9 percent on a monthly comparison, consumer prices are estimated to have increased once again, by a 1 percent tick higher. Should quarterly price increases meet expectations, this will place the annualized comparison well above the central banks target at 3.4 percent. The higher reading would boost near term speculation of the aforementioned notion of rate hikes, offering the Aussie dollar some leverage in the coming week. Separately, in midweek action, the market will be receiving the Conference Boards leading index report. Although no consensus has been met at current standing, whispers can be heard of further expansion in the next three to nine months.
Comparatively, the previous weeks data was slightly less applicable to current sentiment as reports were less cut and dry for the Aussie bull. Nonetheless, the reports indicated a positive outlook for the region along even as demand for skilled labor dipped against previous readings. According to the Department of Employment and Workplace Relations, skilled vacancies declined 1.2 percent. The decrease was in comparison to a 1.2 percent rise in the previous month, offering a total wash notion. The report preceded a better and more promising leading index report by the Westpac survey. According to the Westpac Banking Corp. the pace of economic activity in the near term rose at a monthly 0.1 percent pace. The reading feeds into a 4.2 percent annualized pace for the month of May. Although slightly lower than the 4.7 percent seen in the previous month, the figure remains reflective of positive advancement in the region. In turn, the print has bolstered estimated growth to be revised higher at a 3.5 percent pace compared with a 2.5 percent pace seen in 2005. Subsequent data for the week included a further decline in new motor vehicle sales as export and import price index results remained mixed.
