Australian markets return from a 3-day weekend to face business and consumer confidence reads, the highly anticipated employment data set and an RBA bulletin on a domestic front. Not to mention Chinese data and of course the FOMC minutes - so we could be in for an action packed week.
The Australian Dollar managed to remain above 0.736 support yesterday during a thin day of trading, with news from US overnight very light.
The main driver of the week so far has continued to be fear of Brexit, pushing the Japanese Yen, bonds and VIX higher with stocks, bond yields and investor confidence lower.
Business confidence slipped for a 2nd consecutive month to diverge further away from the business conditions index, making business confidence at its lowest in 3 months.
Holding above 0.735, the Aussie remains relatively subdued after returning from a 3-day weekend, whilst US news overnight was also light. Most of the currency action this week has been dominated by GBP and JPY in the lead-up to the EU referendum, so we could see AUD remain within a tight range for a while longer yet. So whilst consumer confidence is out tomorrow we may have to wait until Thursday’s employment data for a domestic catalyst.
Between 2001 to early 2014 there was a relatively strong correlation between the two reads but this has broken down since 2014. It could be argued that, if conditions improve then confidence would surely follow. However domestic confidence could be weighed down by global concerns, which are becoming of increasing importance again to export driven economies such as Australia. So whilst domestic conditions appear to be rising, general confidence remains weighed down and could affect future investment and growth prospects in future, which could eventually weigh down on the conditions index.
The correlation between both the confidence and conditions index has been less reliable post-GFC, however in recent months we have seen both conditions and GDP tick higher.
Up next on the domestic front we have consumer confidence tomorrow and unemployment data on Thursday. The Aussie has been supported by strong growth and export data, a weaker Greenback (fuelled by a dovish FED) alongside a surprisingly less-dovish than expected RBA. Unless we see a severe miss or beat with the employment data then then any sustained Aussie Dollar move is likely to be taken from the FOMC meeting. The FED are widely expected to hold rates tomorrow, so the initial directional cue for AUD traders will be to what degree, if at all, the FED are hawkish. We suspect the markets have overreacted to the single NFP read which leaves an upside surprise in the FED statement and pressure to remain on the Australian Dollar.
So regardless of direction during this week, we certainly expect volatility.
|Resistance 3:||0.7570||61.8% retacement, Monthly R1|
|Resistance 2:||0.7474/0.7500||Weekly R1, 50% retracement, round number|
|Resistance 1:||151.6400||07/04 low (confirmed bearish breakout)|
|Support 1:||0.7370||Monthly pivot|
|Support 2:||0.7300||Round number, 01/06 high|
|Support 3:||0.7200||Round number, 02/06 low|