AUD/USD Fundamental Forecast – September 2, 2016

The AUD/USD added 23 points to 0.7542 even though local retail sales printed well below forecast as well as New Capital Expenditures. The stronger than forecast manufacturing data from China helped send commodity currencies on a small rally. The Aussie moved higher as investors focused on the positives in domestic economic data, though their longer-term direction remained at the mercy of a looming US jobs report.
Australia's economic data proved a mixed bag but there were enough signs of improvement in business investment to keep the currency underpinned.
Other reports indicated that business spending fell 5.4 per cent in the second quarter, firms upgraded their plans for the 2016/17 financial year in a promising sign of a long-awaited pick-up outside of mining. Retail sales tumbled for July, but a strong rise in home prices boded well for household wealth. Also helping was an unexpected lift in China's manufacturing sector as the official PMI rose to 50.4 in August, from 49.9 the month before. The Financial Times said that it is the lowest reading since February, and also undershoots the 0.3 per cent growth economists, on average, had penciled in.
The ABS said categories such as cafes restaurants and takeaway food services, food retailing, and clothing, footwear and personal accessory retailing led gains. But department stores posted a deep 6.2 per cent drop – the worst of the categories – while household goods retailing also contracted.

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