Australian Dollar Looks to RBA, US Jobs Data to Drive Volatility

Fundamental Forecast for the Australian Dollar: Neutral

• Australian Dollar Looks to RBA Policy Statement for Direction Cues
• Upbeat US Jobs Data May Cement Fed Rate Hike Bets, Sting Aussie
• Find Key Turning Points for the Australian Dollar with DailyFX SSI

The Australian Dollar spent last week treading water near the 0.73 figure against its US counterpart as prices waited for new direction cues after dropping to a six-year low. A break in the standstill looks likely in the days ahead as domestic and external catalysts fuel the return of volatility.

First, the RBA is due to deliver its monetary policy announcement. Expectations call for the benchmark lending rate to remain at 2 percent. While recent data flow suggests economic performance has deteriorated in recent weeks, officials will probably opt to wait for the May rate cut to more thoroughly filter through before easing further.

The absence of a policy change will put the onus on the statement accompanying the announcement. RBA Governor Glenn Stevens struck a neutral tone in recent commentary, noting the monetary policy balance is “about right” at the moment, but added that the question of further rate cuts remains “on the table”. With that in mind, the appearance of a dovish streak in official rhetoric that weighs on the Aussie remains a possibility.

On the external front, speculation about the likely timing of the first post-QE Federal Reserve interest rate hike continues to be in focus. A busy week of economic data releases will be capped by the much-anticipated July Employment report, which is forecast to show the economy added 225,000 jobs last month.

US economic news-flow has increasingly outperformed relative to expectations since mid-May. That suggests analysts’ models are underestimating the vigor of recovery from the first-quarter downswing, opening the door for an upside surprise.

Such a result is likely to cement bets on a rate increase at the Fed’s September meeting, boosting the USD Dollar at the expense of its top counterparts including AUD. The onset of risk aversion triggered by the prospect of US tightening even as growth in the Eurozone and China remains sluggish, threatening the outlook for global performance at large, may bode doubly ill for the Australian unit.