Forex Investment and Currency Trading

The AUD has appreciated strongly in conjunction with the rally in stocks. Indeed the Aussie has outperformed all the other majors since March 9th, supporting the trade idea of long recommendation in AUD/JPY.

Last week brought a string of positive data surprises. Retail sales continued to surprise on the upside helped primarily by the fiscal boost from the government and the rapid flow through of easier monetary policy. The housing market is showing signs of life given the pick up in building and mortgage approvals, although house prices are continuing to fall. Finally, Australia’s external balance has improved due to the generation of a trade surplus on the back of strong commodity exports, which is good for growth. Strong foreign buying of Australian equities in Q4 of last year helped rapidly improve the Australian BBoP. One positive data print we would fade is the better-than-expected labour market data, given that the series is volatile and the underlying trend continues to deteriorate.

On the back of the better macro data and risk on sentiment last week, the market has rapidly repriced its expectations for monetary policy in Australia and now only prices 33bps of easing by September. From a monetary policy perspective the better domestic data and firmer global data allows the RBA time to consider where policy goes next. Analysts expect the RBA to keep rates on hold until September-October, by which point further easing will be warranted. The RBA has clearly retained its easing bias and has adopted a relatively bearish view on growth. However if the global economy continues to improve as most suspect, the risk to the view is that we are now at the trough in rates in Australia.