AUD/USD Outlook
AUD/USD edged higher over the course of last week, experiencing the usual amount of currency volatility, but retraced more than half of its early-week gains. This week’s economic highlight is the Australian January labour market report (released Thursday). The consensus is for a slight monthly decline in Australia’s total employment by 20k, after last month’s 64.8k gain. The Australian unemployment rate is forecast to edge 0.1% lower to 4.1%, to reside just above the April 2008 unemployment record low of 4.0%.
The Reserve Bank of Australia (RBA) has stated they would like to keep interest rates at low levels to help see the Australian unemployment rate fall “below 4.0%” to “full employment”. The RBA also point out that Australia’s inflation rate, at 3.5% is not especially high, unlike that in the U.S. economy, at 7.5%.
The RBA have further stated that Australia’s annual underlying inflation (trimmed-mean measure) has only lifted to 2.6%, just above the mid-point of the RBA’s 2% to 3% inflation target for the first time in 8 years. Consequently, the RBA can afford to leave official interest rates at historically low levels. These views are likely to be confirmed when the minutes to the RBA’s February meeting are released on Tuesday.
Apart from the Australian January Labour market report and the RBA’s February minutes, the most likely drivers of AUD/USD over the course of this week will be offshore factors. Most notably, the performance of global equity markets, commodity prices, and the USD.
Despite a significant lift in U.S. January inflation to 7.5% last week, and a notable increase in the pricing for higher 2022 U.S. official interest rates (the Fed Funds rate), the USD was not able to lift to cyclical highs during the week. This indicates it is possible, the USD, after lifting almost 9% since mid-2021, may have peaked in the current cycle. Consequently, the downward pressure on AUD/USD from the “dominate” USD may have eased for now. The ramifications imply AUD/USD may grind higher, or at the very least, range-trade for a period of time.
With regards to AUD/USD’s likely near-term trading range, importers may want to take note that there appears to upside resistance to AUD moving higher at the 100 day moving average level of 0.7248 (and above that, at the 200 day moving average of 0.7364). Exporters may like to take note that there is “technical support” for AUD/USD at 0.7050.
AUD/EUR Outlook
AUD/EUR will take some guidance from this week’s Australian January employment numbers on Thursday. Please see AUD/USD section above. AUD/EUR may also be modestly affected by the second estimate of Eurozone Q4 GDP (on Tuesday). The first estimate of Eurozone Q4 GDP showed the economy growing at a strong 4.6%, supported by stimulatory Eurozone fiscal and monetary policy, as well as base effects. The second estimate of Eurozone Q4 GDP will provide the details on the contributions to Eurozone GDP growth.
European Central Bank (ECB) President Christine Lagarde, will also speak before the European Parliament on Tuesday. She is likely to reiterate the ECB will respond to rising Eurozone inflation pressures, which may give EUR/USD some intra-day strength, weighing modestly on AUD/EUR.
AUD/EUR is likely to continue to remain in a tight range and remain relatively heavy over coming weeks. There appears more medium-term upside to EUR/USD than there does to AUD/USD because of the higher inflation pressures in the Eurozone compared to Australia. Eurozone term interest-rates are more likely to rise than Australian term interest-rates, subsequently driving AUD/EUR modestly lower.
For Australian importers, technical upside resistance in AUD/EUR is around 0.6315, and for Australian exporters technical support is around 0.6175.