-Alan Oster, chief economist of NAB
The Australian Dollar started this week in a narrow range, with the AUD/USD trading around 0.9360. During the last week, the pair already added 1%, and this week it has a potential to perform another impressive rally. The direction, however, can be opposite.
On Monday, the National Australia Bank said a gauge of business confidence jumped to 6 last month, inching higher from March's reading of 4 and moving further above the zero mark, which shows improving conditions. The improvement comes following upbeat comments from the central bank, which changed the mood in the recent weeks from strongly dovish to a neutral or even slightly hawkish. Interbank futures showed that investors are pricing in just a 2% possibility of a rate hike from the record-low of 2.5% later this year. The labour market is finally improving, housing market is on the mend as well. Therefore, the central bank decided to signals an end of the easing cycle and promised a period of stable interest rates. Glenn Stevens plays a role of a good cop, while Australian Treasurer Joe Hockey is a bad cop. Later this week he will deliver his first budget, which spending cuts and new levies in order to tackle an expected shortfall of $123 billion over four years. This budget will definitely prevent Stevens from raising borrowing costs any time soon and can even prompt him to make another rate cut in case of a significant tightening of the fiscal policy.
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