FUNDAMENTAL SUMMARY: (http://www.rba.gov.au/speeches/2016),
The most important development in October was the first public speech by the new Governor of the Reserve Bank, Philip Lowe.
He defined the guidelines he will be using in the implementation of monetary policy over the next seven years.
The centrepiece of the monetary policy framework will no longer be a flexible medium-term inflation target of 2to 3 %, but the level of slack in the labour market and the state of private balance sheets.
By this shift Lowe wants to focus more on one of the factors (excess capacity, lower commodity prices and perceptions of reduced pricing power) that led to global low inflation:
Excess capacity in the labour market. According to him, while the Australian economy has performed better than many others over the past decade, they still have some spare capacity. The current unemployment rate of 5.6 per cent is around ½ percentage point or a bit more above full employment.
Looking at broader measures of labour market utilisation reinforces this point . Over the past year, the Australian Bureau of Statistics’ (ABS) measure of underemployment has risen, not fallen, so that overall labour market underutilisation has been little changed. This largely reflects the fact that many of the people finding work recently have been employed in part-time jobs and report that they would like to work more hours.
If slack is easing in the labour market and leverage risks continue in an environment of buoyant housing markets in Sydney and Melbourne then he will keep rates on hold. If slack is increasing in the labour market and there are no leverage risks then low inflation will provide the opportunity to increase stimulus. House prices could be seen as reliable lead indicators of leverage risk.
Consumer Price Index (http://www.fxempire.com/fundamental/fundamental-analysis)
The quarterly CPI data showed a 0.7% gain versus the 0.5% estimate. Last quarter the report came in at 0.4 %.( stayed within the target and still relatively low)
NEW Home Sales (http://www.investing.com/economic-calendar/hia-new-home-sales-377)
Was 3.8. Lower than the expected 6.1. (negative/bearish for the AUD.)
TECHNICAL SUMMARY: ( www.dailyfx.com/forex/)
The AUD/USD closed at 0.7594, down 0.0010 or -0.13%.
AUD/USD headed for strong support on the daily chart at 0.7565 and even stronger support on the weekly chart at 0.7520. This would be an excellent buying opportunity if hit. Try longs with stops below 0.7470. Minor resistance at 0.7585/90 but above 0.7610 could target 0.7640/45. Just be aware that a break above 0.7650 targets 0.7680/85.
AUD ECONOMIC CALENDAR 31 0CTOBER-4 NOVEMBER (High impact events)
Tuesday 1 November:
1. Interest rate decision and RBA rate statement.
This coming week’s central-bank rate decisions in
November are not as important as the ones in December because no changes in monetary policy is expected but investors will be listening closely for their tone/bias and guidance as they will set expectations for next month’s potential moves.
2. China Manufacturing PMI
Friday 4 November
Retail sales and RBA monetary policy statement
Commitment of traders report (COT)
AUDUSD: Increase in buyers, decrease in sellers, uptick in net non-commercial positions and relatively unchanged weekly close price. Bullish (net non-commercial position above waterline)
AUDUSD TRADE FORECAST (http://www.investing.com/analysis/forex)
This past week has been a great one for the U.S. dollar with Friday’s stronger-than-expected third-quarter GDP report adding fuel to the market’s optimism.
AUD has shrugged off rising Iron ore and gold prices but we believe these rallies will return as drivers for the currency in the coming week. Meanwhile, Chinese PMIs will affect AUD.
Traders will be watching for any new developments regarding the Clinton FBI probe. If this develops into a major story then look for the U.S. Dollar to weaken. This could drive the Australian dollar higher.
If the focus is on central bank activity this week and next then look for the Aussie and Kiwi to weaken.
In my opinion market will react to Clinton emails FBI investigation , my bias for this week will remain bearish on Aud despite of the COT report and the fact that the interest rate will remain unchanged for the rest of the year. In fact in my view Aud pairs will be affected more by changes in the counterpart currencies because the Australian economic situation hasn’t drastically changed for 2 decades . Hence I will focus on technical outlook and fundamental news of the other currencies.