Big week for the Aussie

There is plenty of data out for the Australian dollar this week and we are likely to see the volatility ramp up. A dovish RBA could come head to head with positive Chinese data and put pressure on the ranging pattern on the AUDUSD charts.

Minutes from the most recent Reserve Bank of Australia meeting showed a concern about global growth, especially Europe, Japan and China. The RBA said that continuing its accommodative monetary policy stance will help support demand and strengthen growth over time. There are no real surprises here for the market and hence a rather muted response to it.

Shortly after we saw Chinese GDP and industrial production figures released that came in better than expected. GDP y/y was expected to fall from 7.5% to 7.2%, however, managed to beat the forecast at 7.3%. Similarly, Quarterly GDP figures fell less than expected to 1.9%. Industrial production was much stronger at 8.0% vs 7.5% expected, up from 6.9%. Australia relies heavily on China for export income, so it’s no surprise to see the AUD react positively to the strong data.

Tomorrow the CB leading and MI leading indexes will be released and give the market a snapshot of the current state of Australia’s economy. Not long after the market will be watching Australia’s CPI figures with keen interest. Quarterly inflation has been falling somewhat with last quarter’s CPI at 0.5% q/q. We could see this come in a bit stronger this month as the Australian dollar has fallen considerably in the previous two months, inflating import prices. A positive result would be bullish for the AUD.

Thursday will see a speech from RBA governor Glenn Stevens. The market will take note of the tone he uses to get an indication on his position on the dollar. He likes to talk the dollar down and he could reiterate the stance that the accommodative monetary policy is likely to remain for some time.

Also on Thursday we will see HSBC release their Chinese Manufacturing PMI. This is generally a big news item for the Aussie Dollar as the majority of Australian coal and iron ore exports go to China. If the Chinese manufacturing sector is strong, the Aussie will benefit. The PMI has been hovering just above 50 for a few months and is expected to remain there or thereabouts. Anything sharply differing from market expectations will have a big effect on the Aussie.

The AUDUSD pair is currently in a ranging pattern between 0.8650 and 0.8850. The data out this week will certainly give it direction, but we may just see rejections off the limits of the range. The stochastic oscillator is certainly not much help, but it is showing more of a bullish bias as the price drifts towards the upper limit.

As volatility globally subsides, look for the range to hold unless we see some very strong Chinese data or a marked change in the tone from RBA Governor Stevens.