AUD finds its feet as greenback retreats

The Australian dollar has continued a slow and steady ascent in the local trading, recovering from lows of 78.58 US cents overnight. A stronger dollar and weaker commodities prices saw the Aussie kick off the week under pressure falling around half a cent before a bit of relief in US trading. The greenback appears to have lost its sheen coinciding with manufacturing data in the U.S which fell short of expectations. A preliminary reading of Markit Manufacturing PMI dropped to a reading of 52.6 in November, against expectations of 54. While the reading still suggests manufacturing is growing, market participants are particularly sensitive in light of the forthcoming FOMC meeting. Although not necessarily a deal breaker for the Fed, anything seen as a cross against the Fed raising the Federal Funds Rate in December is a negative for the greenback.

Markets weren’t particularly encouraged by existing homes sales data either. The National Association of Realtors (NAR) reported existing home sales fell 3.4% at an annual rate of 5.36 million in October. Business insider reports more on this.

Still to come this week in terms of US data is trade balance, 3Q Gross Domestic Product and consumer confidence data on Wednesday. Personal income and spending, consumption expenditure and durable goods orders, new home sales and University of Michigan consumer confidence all due for release on Thursday. Refer to the GO Markets website for a full list.

As noted in yesterday’s report, things are very different in Europe, with markets predicting when the European Central Bank will add more stimulus and take deposit rates deeper into negative territory. ECB President Draghi’s mantra is the ECB will do ‘whatever it takes’ to bring inflation back to acceptable levels, and didn’t sway from this commitment once again last week.

Much of this week’s data from the European region will be from Germany. Market participants will get a view of the health of Europe’s largest economy with GDP and IFO data on Tuesday and retails sales on Friday.

Locally, there’s not a great deal of top tier data on the agenda this week with Thursday’s 3Q Capital Expenditure (Capex) data generally a closely watched data point. The level of investment activity indicated by the Capex data serves as a barometer of sentiment about the economy. It may also provide an indication of confidence in new leadership with Prime Minister Malcolm Turnbull taking over the reins from Tony Abbott in September.

Certainly, there will be some interest around speeches from the RBA’s Glenn Stevens in Sydney this evening. Governor Stevens seems to have no qualms in taking interest rates lower if required, but as always, markets require constant reassurance. Rate cut expectations have moderated after last week’s employment data, so any suggestion that the Governor thinks rates need to be lower will hit the Aussie.

At the time of writing the Australian dollar is buying 71.95 US cents.