Fundamental Forecast for Australian Dollar: Bearish
Another quiet week on the Australian economic data front keeps the spotlight on external factors, with the evolving outlook for Federal Reserve monetary policy in focus. A central theme driving markets since the beginning of the year has been the disparity between soft US news-flow and the Fed's commitment to continuing to "taper" its QE effort. That encouraged investors to suspect that the central bank may pause or abandon the process of reducing the size of its monthly asset purchases.
For its part, the Fed has steadfastly reduced the pace of balance sheet expansion by
The item of greatest significance is likely to be the release of minutes from the Fed's April monetary policy meeting. Traders will be keen to gauge policymakers' confidence in QE reduction continuity in the early weeks of what is increasingly looking like a re-acceleration of US growth. Recognition of the transition in its infancy would go a long way toward brandishing the Fed's ability to read the business cycle, bolstering the central bank's credibility and scattering doubts about the likelihood of an end to QE by autumn.
Unencumbered speculation about the culmination of stimulus expansion and the commencement of interest rate hikes thereafter sparked liquidation across the spectrum of risky assets last year, when then-Chairman