Latest Developments:

March 18 – Employment for February saw the Unemployment Rate fall to 5.8% from January’s 6.4%, while Employment Change printed at 88.7K compared to a prior of 29.1K.

March 3 – Real GDP for Q4 printed at 3.1% Q/Q and -1.1% Y/Y versus consensus of 2.5% Q/Q and -1.8% Y/Y. Reports suggest the V-shaped recovery taking place in Australia is likely to continue as strong consumer spending and its housing boom point to a strong start in 2021.

March 2 – At their March meeting, the RBA kept the Cash Rate and 3yr yield target at 0.10% and asset purchases at A$100 billion as expected. Additionally, the RBA reaffirmed its commitment to highly supportive monetary conditions, adding it does not expect a tight labour market and high wage growth until 2024 at the earliest.

January 27 – Headline CPI for Q4 printed at 0.9% Q/Q and 0.9% Y/Y compared to Q3’s 1.6% and 0.7%, respectively. Regarding Australia’s core measures, Weighted Median CPI printed at 0.5% Q/Q and 1.4% Y/Y, while Trimmed Mean CPI printed at 0.4% Q/Q and 1.2% Y/Y.

Future Sentiment Shifts:

Markets have stabilised over recent months with AUD one of the primary beneficiaries of the material improvement in the risk outlook since the coronavirus outbreak caused panic last year.

Risks to the market’s overall risk outlook remain high, as many countries are experiencing second waves of the coronavirus and implementing new lockdowns. However, with that said, with coronavirus vaccines now being rolled out, the future outlook is optimistic.

We expect the market’s overall risk tone and performance in commodities to remain the dominant driver and influence for AUD going forward. Of course, pay close attention to global progress in containing and managing the coronavirus outbreak took.

Primary Drivers:

Reserve Bank of Australia – Australia’s monetary policy outlook plays a pivotal role in AUD’s fundamental outlook. A hawkish stance from the RBA and expectations for policy tightening will likely prove AUD positive; while a dovish stance and expectations for policy easing will likely prove AUD negative.

Risk tone – Due to its high beta status, AUD is strongly correlated with the overall risk tone; strengthening in risk on environments and weakening in risk off environments.

Commodity Markets – Due to Australia’s dependence in its commodity exports for economic growth, AUD is strongly correlated with commodity markets, particularly iron ore, which accounts for 20% of all Australian exports.

China – China is Australia’s largest trading partner, accounting for 35% of all Australian exports and 24% of Australia’s imports. As such, developments in China and Chinese economic data can prove highly influential to AUD.