From U.S stimulus expectations, ECB policy feedback, and barrage of local economic news, there’s no shortage of event risk to guiding the Aussie dollar’s fortunes this week. Locally, the RBA policy decision, Gross Domestic Product and employment data will take centre stage while Chinese growth prospects will remain a critical part to the equation of where the Aussie will head next. Considering the regular commentary from the Reserve Bank in recent weeks, on the surface, one would expect Tuesday’s policy decision to carry little in the way of a surprise element, with interest rates expected to remain on hold at 3.5 percent. Nevertheless, investors will be scouring through the ensuing statement for any clues pertaining to how the Reserve Bank see’s the local economies prospects in light of further signs China is coming off the boil and how a falling commodity prices (namely Australia’s largest export iron ore) may impact on local growth prospects. The recent releases of the RBA policy meeting minutes for August noted tentative signs Chinese growth is “stabilising at a more sustainable pace,” while recent interest rate reductions were beginning to infiltrate domestic conditions, in particular the housing market. Overall, it’s a huge week for both local and global directives for the Australian dollar, with U.S stimulus conjecture, European Central Bank policy decision as well as a number of top-tier local data points to govern risk trends, and as a high-beta currency the A$ will be one of the first in-line to reflect these outcomes.

U.S stimulus conjecture will remain a key element to U.S dollar moves and risk currencies alike with Friday’s non-farm payrolls a critical piece of the puzzle ahead of the Fed’s next policy meeting over the September 12-13. The U.S economy is expected to create 130,000 new jobs in August from 163,000 in July with the official unemployment rate expected to remain steady at 8.3 percent. Also in the frame this week will be health of U.S manufacturing with a final revision to the Markit PMI index and ISM Manufacturing Index on Tuesday. The usual pre-nonfarm build-up with see employment gauges such as the ADP private payrolls and weekly jobless claims act as a precursor to the main event on Friday. In light of Bernanke’s failure to provide explicit detail on the possibility of near-term stimulus in his Jackson Hole appearance, the week ahead will see stimulus conjecture remain a primary driving factor with top-tier data points scrutinized in the context of how this will impact the Fed’s next move. True to recent form, in his speech Bernanke once again displayed a willingness to embark on further non-traditional policy initiatives, without prompting a material shift in expectations. It is clear, however, Bernanke believes the pace of economic growth remains unsatisfactory, stating “stagnation of the labor market in particular is a grave concern” which could “wreak structural damage on our economy that could last for many years.” The U.S dollar index which measures the value of the greenback against six of its most traded counterparts fell -0.45 over the week.

This week we will finally learn exactly what Mario Draghi means when he said the ECB will do “whatever it takes” to get the euro-region back on the straight and narrow and critically, if it’s enough to get Spain to forgo its sovereignty and agree to a memorandum of understanding in exchange for financial assistance. What we do know is the ECB may intervene in debt markets with a focus on shorter-term maturities, but only in conjunction with Europe’s rescue fund, the European Financial Stability Facility (EFSF) or the pending European Stability Mechanism (ESM). To qualify, a country must first seek financial aid and meet "strict and effective conditionality in line with the established guidelines." This will see any measures outlined viewed in the context of just how likely Spain will be to come to the party and officially ask for a sovereign bailout, and more broadly if it’s enough to stop the rot across Europe’s periphery. Spanish Prime Minister Mariano Rajoy has been reported as saying "If I believe it is good for Europe as a whole, for the euro, and for Spain, I will do it, and if not, not." Spain has already received a bailout for its ailing banking sector, but has not yet joined the likes of Greece, Ireland, and Portugal by seeking a sovereign bailout.

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