Aussie Edges Lower as Australian Business Confidence Softens

The Australian dollar has posted small losses on Tuesday, continuing the lack of activity which marked the Monday session. The pair is trading at 0.7360 in the North American session. On the release front, Australian NAB Business Confidence dipped to 3 points. Later in the day, Australia releases Westpac Consumer Sentiment. In the US, Core Retail Sales matched the forecast with a gain of 0.4%, while Retail Sales edged above the forecast, climbing 0.5%. On Wednesday, the Federal Reserve will release its rate statement, with the markets expecting no change to interest rate levels.

Business confidence dipped to a 3-month low in May, according to the NAB Business Confidence survey. The indicator dipped to 3 points, compared to 5 points in the previous month. NAB chief economist Alan Oster noted that business confidence had not improved as much as expected since the RBA rate cut in May, adding that the RBA was unlikely to lower rates before August. Australians go the polls in three week's time, so traders should be prepared for volatility from the Australian as we head closer to the election. With Australia's economy certain to be a hot issue during the campaign, a business think tank is warning that the country's AAA credit rating could be at risk if the next government fails to reign in budget deficits. The Committee for Economic Development of Australia has called for a bipartisan approach to repair the economy and restore a budget surplus. A lower credit rating would make Australia less attractive for business and investment and would likely send the Australian dollar sharply lower.
All eyes are on the Federal Reserve's policy meeting, which will conclude with a rate statement on Wednesday. The markets have written off a rate hike in June, while a July move remains unlikely, according to the CME Group. The chances of a June hike are just 1.9% compared to a 26.3% in May. The chances of a July hike is 17.9%, compared to 43.2% in May. The sharp drop in market sentiment for a rate hike can be attributed to the dismal US Nonfarm Payrolls report as well as some backpedaling by Fed over the past few weeks. Back in April, Fed chair Janet Yellen had renewed hopes of rate hike in the summer, when she said that she expected a rate hike in "the coming months". Since then, Yellen has sounded more cautious, and in a recent speech she was careful to avoid a time frame regarding a rate hike. To be fair, the Fed has made a strong effort to communicate clearly with the markets, and has stated that the timing of a rate hike would be data-dependent. With the US economy posting some mixed numbers and inflation levels remaining at low levels, it should not come as a surprise that the Fed may stay on the sidelines until September or even later. 

Source: Actionforex.com