Australian Dollar Outlook - Feb. 26, 2016

Bell FX Currency Outlook: The Australian Dollar is higher this morning as stronger oil prices pushed commodity currencies higher.

Australia: The AUD is currently trading around 0.7230 after a rally during US trading. Yesterday’s big news was the release of Australian capital expenditure (capex), which saw the headline figure for 2015 Q4 better than expected, although looking deeper into the data underwhelmed the market. Non-mining investment intentions remain in the doldrums with firms’ first estimate for 2016-17 signaling a 6% y/y decline in year-average terms. While the RBA appears less fazed by the soft business investment outlook due to the stronger jobs market, these data highlight the challenges around the investment outlook. Mining investment intentions remained downbeat, with a projected decline of 27% y/y over 2016-17 in year average terms. The AUD sold off following the capex release, down from 0.7190 to a low around 0.7160 before a strong rally overnight as oil traded higher and the USD sold off. It looks to be a quiet day ahead with no Australian data to be released, although Japanese CPI and China’s house price index will be watched, as will any news out of the G20 meeting.

Majors: Crude oil prices continued to rise after US gasoline stocks declined. Seasonality suggests US refinery utilisation will start to climb in March and help ease US crude inventory levels. Prices also received
support after news that Russia, Saudi Arabia, and Qatar have agreed to meet in March to discuss capping crude oil production at January levels. On the data front US durable goods printed above market expectations in January, jobless claims in the week of 20 February rose to 272k from 260k and Kansas City Fed Manufacturing production index was largely unchanged in February (-8). Despite the generally upbeat data, the USD was still driven lower on oil strength (except against the yen) and is weaker against all the commodity currencies (CAD, NZD, AUD). The GBP and EUR whipped around on data releases; the second read of Q4 GDP in the UK showed weakness in capital formation and private consumption being offset by government spending. EU data remains soft, with Italian releases below expectations and EU-wide CPI for January lower, illustrating the inflation battle the ECB faces. Tonight’s main events are the G20 meeting, CPI releases out of Germany and the US, as well as US GDP and consumer spending.

Economic Calendar 26 FEB

• CH G20 Finance Ministers and Central Bank Governors’ meet
• NZ Trade Balance
• GE CPI MoM/YoY
• US PCE Core MoM/YoY

Bell Fx

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