Curve Daily Commentary, April 14, 2015

Data Miss Hits AUD

Xommentary 1404
With commodity prices plunging, the Chinese trade data released yesterday was always going to be closely watched. Unfortunately there was no good news to report with the annual pace of imports down more than expected to 12.3% albeit a little better that the -20.1% from February. The export data was of a little more concern with the annual pace plunging to -14.6% after it was expected to print at a gain of 8.2%.

The release reverberated around the market with the AUD hit particularly hard. The RBA was holding its ground at around 0.7670 prior to the release, then dropped almost 3/4 of a cent in a matter of minutes to around 0.76. The AUD then lost more ground as the USD continued to firm, hovering around multi-decade highs.

We are likely to hear more and more about the USD and its ascendancy with both technical and fundamental factors suggesting the its move higher has some what to go.

The USD dollar index this year broke through a downtrend line dating back over 30 years to the mid 1990’s. With the FOMC expected to start normalising interest rates but raising the cash rate at some point over the next 6 to 12 months, the impact on interest rate differentials will provide even more impetus for the rally to continue.

This is good news for Australia. While the AUD has so far held its ground against the USD, despite falling against most other currencies, it is only a matter of time until the rise of the USD, falling commodity prices and the narrowing interest rate differential between the US and Australia pushes the AUD lower. The big question is, can the RBA wait for the FOMC to act, or will the be force to move again to close the interest rate differential themselves? 

There will be plenty of data to keep an eye on today with the ANZ-Roy Morgan weekly consumer sentiment survey and the monthly NAB business survey both scheduled for release. These will be followed by the release of Curve’s Monthly Insights where this month we take a look the confidence conundrum, the risks around the budget and what it could mean for interest rates.