Australian Dollar Outlook - 30 July 2014

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Euro and U.S. dollar banknotes
Euro and U.S. dollar banknotes are seen in this picture illustration taken in Prague January 23, 2013. Credit: REUTERS/David W Cerny

Bell FX Currency Outlook: The Australian Dollar is slightly lower amid more signs the US economy is improving.

Australia: This morning, the AUD is trading at around USD 0.9385. In currency markets, the USD again strengthened and its gains are broadening. The US consumer sentiment result gave the move some fundamental substance, particularly given the resulting move higher in short-term US bond yields, but Russian concerns also remain an issue.

We expect further USD gains as we proceed through the remainder of the week's important events. While the AUD remains camped around the0.9400 region, it too should weaken under this influence.

Yesterday in Australia, the ANZ-Roy Morgan consumer confidence index rose a further 2.4% to 116.2 in the week ending 27th July. Confidence has now completely retraced the sharp deterioration seen in the weeks around the Commonwealth Budget. This suggests the "shock" from the Budget was temporary, with the improvement in house prices and employment, and recent signs of a pick-up in activity in the global economy, likely supporting confidence back to its long-run average level.

Consumer confidence has now moved back into line with business confidence, which is good news for demand in the economy and business investment going forward. While  the weakness in retail sales in May in part reflected the hit to confidence, we think retail spending should strengthen going forward.

Majors: Broad US dollar strength was the dominant theme in foreign exchange markets overnight after consumer confidence rose to 90.9% inJuly, up from 86.4% in June and much stronger than the 85.6% reading analysts expected. The USD also rose as traders positioned themselvesfor what is expected to be an improvement in the June GDP figures to be released Wednesday night (Australian time). There are a number of keydata/events for the US scheduled for tonight as markets are also awaiting the outcome of the US Federal Reserve policy meeting which ends earlyon Thursday morning (AEST). The Fed is widely expected to taper is bond purchases by another $US10 billion a month and to upgrade economicgrowth forecasts.

Economic Calendar30 JUL US ADP Employment ChangeUS GDP Annualized QoQUS FOMC Rate Decision

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