AUD range bound as attentions turn to RBA

Daily Currency Update

The AUD tracked within a well-defined and narrow trading handle through Monday as investors appeared content in monitoring positions leading into today’s RBA policy update. With little of note on the domestic ticket, our attention again turned to China and the PBoC fixing of the yuan reference rate. Policymakers set about protesting CNH softness, again setting a higher reference rate.

The move seems to have prevented further yuan weakness and helped underpin AUD supports at US$0.6650. The AUD then jumped to US$0.6670 after a US ISM manufacturing report showed activity contracted to lows seen only in the depths of the Pandemic. The soft read prompted a downturn in US 2- and 10-year treasuries, before a rebound into the daily close.

While the manufacturing sector slides deeper into contractionary territory, it comes as little surprise and the real impact on rates and the USD has been largely muted, instead, our focus turns to the RBA.  This month’s decision is finely balanced with analysts and economists divided on whether policymakers will issue yet another rate hike.

Inflation pressures eased through May, yet housing data indicates a rebound in house prices and the labour market is proving remarkably resilient. With just a 20% chance of a rate hike, we are keenly attuned to the rate decision and surrounding commentary. A hawkish undertone could help the AUD extend back above US$0.67, while a dovish address could prompt a break back below US$0.66.