The Australian dollar forecast for the first half of the week is showing plenty of promise for added AUD volatility with Minutes from the RBA’s most recent meeting released over night ahead tomorrow’s potentially pivotal retail sales release and lending conditions report from Westpac. Insight into consumer confidence is often used as a barometer by investors for economic growth in the months and years ahead and so Wednesday’s releases might be keenly watched. With fresh outbreaks across Australia’s most populous states mounting pressure on government to provide clarity on how it plans to proceed and avoid another lockdown, businesses will be hoping that consumers are still ready and able to go out and keep the flow of money running through these nervous times. We have seen a consistent return to form for the Australian dollar in recent weeks as global risk appetite returns slowly but surely.
Will the Pound Fall Against the Australian Dollar This Week? UK Government and Bank of England Key Drivers
The pound seems to have been drive a change in trend against the Australian dollar recently however having bounced up from the 1.80s and looking to accelerate upwards. Most of this could potentially be attributed to the UK government’s goodwill in going into Brexit talks with the EU. During yesterday’s trading, a spokesman for Prime Minister Boris Johnson said the UK will engage in “constructive” talks to further clarify it’s relationship with the EU. The statement also reiterated that the government has no intention of renouncing it’s status as an independent state, however the pound seemed to gain added value with the markets, jumping up to a day high of 1.8052 on interbank exchange rates against the Australian dollar, it’s highest level in around 2 weeks. Clearly there is a fair amount of optimism going into this week’s negotiations which commence today and so further volatility could be expected should further positivity come from these talks over the coming days. Those holding Australian dollars looking to buy pounds may want to consider their options in case we see a consistent change in trend from sterling.
Interestingly, the Bank of Englanf confirmed this week that the UK economy has managed to recover around half of the loss in output seen in early spring. Indeed, Andy Haldine, chief economist for the BOE announced “roughly half of the 25% fall in activity during march and April” has been recovered, adding further reason for optimism behind the pound with investors potentially holding out for more signs of the V-shaped recovery the market is hoping for.
Trading Partners Helping the Australian Dollar to Stabilise, but for How Long?
We also had a long list of data from Australia’s major trading partners Japan and New Zealand which could drive the Australian dollar’s value this week too. Last night’s sluggish inflation levels registered in Japan’s Consumer Price Index fell in line with expectations. Heavy contractions here could well have forced the Australian dollar to surrender it’s early month gains. Equally, though it continued to fall, Credit card spending levels registered in New Zealand began to stabilise during the month of June which could go some way to strengthening trade ties in the weeks and months ahead. Another interesting release to follow will be this evening’s Global Dairy Trade price index. As one of New Zealand’s leading commodities, a price drop here could put pressure on the New Zealand dollar which might affect the country’s purchasing power for Australian goods in the short term.
What is Holding the Australian Dollar Back? Focus on AUD EUR Pairing This Week
This can be reflected in the AUD’s inability to push ahead against other major currencies too. For example AUD EUR rates have stalled once again this week, with the pair hovering in and around the low 0.61s. It will be interesting to see if this week’s COVID-19 agreement amongst EU members helps break the deadlock. Heavy weights Germany confirmed that the flagship nations of the European bloc have been able to overcome the big differences of opinion in how the region should distribute the support stimulus program, to “sketch out a framework” that works for all. Investors may have been frustrated by the lack of tangible action by the bloc as a result of the continuous breakdown in talks. The €750bn support fund could drastically accelerate the recovery within European markets and potentially further drive interest for the single currency in the weeks and months ahead.