The Westpac Index Falters but the Aussie Dollar Gains

westpac, rba, leading, indexThe Australian dollar (AUD/USD), much to the chagrin of the Reserve Bank of Australia (RBA), moved higher despite a key leading indicator from the commercial lender Westpac faltered.

The Leading Index, for the month of June, published by Westpac fell by 0.14 percent on the month. That is not so bad. It was worse than May’s 0.01 percent fall. However, the six month annual growth slumped 0.76 percent. This is after it increased 0.51 percent in the previous month. That is a steep decline.

Westpac, in its statement, said that June’s print was the first below the trend reading since July 2016. The lender also points to a “slowdown in momentum in Australia’s growth profile.” The deterioration is mainly due to a sharp rise in Australian Dollar denominated commodity prices.

In its statement, Westpac analysists wrote that “While we have seen a sharp recovery in iron ore prices since mid-June in USD terms, the sharp increase in the Australian Dollar…will partly offset that adjustment.” The RBA is likes to show concern about a strong local currency. The central bank strongly expressed these concerns in this week’s release of the RBA monetary policy meeting minutes from July.

Westpac Data does little to stop the Aussie Dollar

The Australian dollar, in the AUD/USD Forex market has been rising as the US Dollar is weakening.  Investors are beginning to rethink the Federal Reserve’s pace and aggression of monetary tightening. We have seen a patch of weaker data out of the Unite States.

Australian interest rates remain at their all-time record low of 1.5 percent. The policy makers at the RBA are not thought likely to until the end of next year. Index swap futures currently indicate a possible rise in the official cash rate by mid to late 2018.

David Frank

David Frank

Chief Market Strategist at CupO'Forex
David has his MA and PhD in Economics. He is a technical analyst who has been trading in the Forex world for over a decade. As an analyst and trader, David believes in the big picture by blending together technical analysis with the fundamentals behind the scenes in the Forex and Bond markets. David’s trading strategy is unique. He blends an understanding of fundamental and macroeconomics with technical analysis to offer a unique view into Forex. He applies several strategies including carry long positions, to take advantage of high yields in non-volatile markets, as well as using quicker, chart related analysis for day trading.
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