The Aussie had an important and contradictory set of releases this week, causing AUD/USD to see-saw in a one-hundred point range between 0.7460 and 0.7560. The pair spent almost equal time above and below the weekly open at 0.7514, as the currency struggled for direction. With no major releases and only sparse data, next week looks to be a game of position for Australian dollar traders.
The price action is not likely to be guided by the news but rather general market sentiment, and the direction will be decided on whether the astounding job market can overcome a debilitating trade deficit. Looking ahead, the most important release of next week comes on the Thursday, with second quarter export and import prices. Export prices are expected to grow 4.5%, slower than the 5.1% clip in the first quarter, while import costs are projected to increase at 1.5%, faster than the 1.3% pace in Q1. The number does not look to boost confidence in a May trade deficit that widened last week to A$2.266 billion, from A$1.115 billion in April. The number did not come anywhere close to expectations of a A$1.100 billion shortfall , and was even outside the wider projections of a drop to a A$1600 gap. Although Australia has benefited greatly from increased commodity prices, the skyrocketing price of oil has weighed on the balance and the economy. Both exports and imports have grown 13% year over year, but import growth has outpaced exports over the last quarter. A look at export and import data for May illustrates this point. Imports reported at 18.720 billion while exports came up shorter at 16.454 billion. New Motor Vehicle sales are expected to increase only slightly for the month of June, after a 0.5% month over month increase in May. Yearly numbers, however, were down 2.7% in May, and that is only expected to recover mildly in the coming month.
The employment market has performed exceptionally well of late, with skill shortages and increased output of mines pulling in additional workers. As written Wednesday, "Australian employment rose a whopping 52K from 10K expected. To put the Australian figures into perspective they would translate into an equivalent of 780K new jobs created in US on a monthly basis." The May numbers reported at 56.0K initially, but revised down to a still very strong 47.7K. Increased demand for metals from China has been a large factor in boosting the export demand for materials. However, Western and Northeastern Australia have been growing considerably faster than the Southeastern coast, which has pulled down the overall Australian economy with its recent weakness. The strengthening job market and rising inflation is expected to result in additional rate hikes in the Aussie before the end of the year. The question becomes whether the Aussie bull-favored view of two rate hikes will become a reality, or if the RBA will opt for the more bearish single rate hike. The Australian rates remain at 5.75%, second only to New Zealand at 7.25%. The global trend has been toward rate increases, with the end of ZIRP in Japan and rising rates in the US, Euro-Zone and expected increases in the UK.
