Aussie dollar trades below 67 US cents
Daily Currency Update
The Australian dollar is slightly weaker this morning when valued against the Greenback breaking through all major daily Simple Moving Averages (SMA) as it extends losses after the release on Thursday of better-than-expected US GDP data for the second quarter. An unexpected rise in the Federal Reserve's (Fed) preferred inflation gauge, Personal Consumption Expenditure (PCE), on a month-on-month basis keeps up the downside pressure on the AUD/USD pair. Last week Australian inflation slowed more than expected in the second quarter thanks to falls in the cost of domestic holidays and petrol, suggesting less pressure for another hike in interest rates and sending the local dollar sharply lower. Investors reacted by lengthening the odds of the Reserve Bank of Australia (RBA) increasing rates at its meeting next week, with futures now pricing in a 31% chance of a quarter-point hike, compared with 50% before the data. The inflation picture suggests the risk remains of some further tightening in Australia in the next few months but that at the same time, we are close to the peak in interest rates.On the local data front this week and on Tuesday the Reserve Bank of Australia (RBA) will announce its interest rate decision with another potential interest rate rise taking the Official Cash Rate from 4.10% to 4.35%. Australia’s central bank has hiked interest rates every month since May last year, with the exception of April and July, when rates were momentarily paused. The cash rate currently sits at 4.1 per cent, the highest it has been since 2011, after enduring the fastest tightening cycle on record – climbing 400 basis points from the historic pandemic low of 0.1 per cent. On Tuesday we will also see the release of monthly Building approvals and the Commodity Prices Index a leading indicator of the nation's trade balance with other countries because rising commodity prices boost export income.
Key Movers
Last week the United States Gross Domestic Product (GDP) expanded at an annualized rate of 2.4% in the second quarter, first estimates showed on Thursday. This reading followed the 2% growth recorded in the first quarter and surpassed the market expectation of 1.8% by a wide margin. On Friday we saw an unexpected rise in the Federal Reserve's (Fed) preferred inflation gauge, Personal Consumption Expenditure (PCE), on a month-on-month basis, which keeps up the downside pressure on the pair. Headline PCE rose by 0.2% on a MoM basis in June – well above the -0.1% forecast and the 0.1% previous, according to data from the US Bureau of Economic Analysis on a YoY basis PCE rose by only 3.0%, which was below the 3.1% expected and 3.8% reported in May. Core PCE gained 0.2% MoM, in line with expectations and below the previous month of May's 0.3%. On a YoY basis, it showed a lower 4.1% increase in prices compared to the 4.2% expected and 4.6% previous. Initial Jobless Claims on Friday decreased by 7,000 to 221,000 in the week ending July 22 below the 235,000 gain forecast. Continuing Claims fell to 1.69 million versus the 175M forecast. While Durable Goods Orders jumped 4.7% on a monthly basis to reach $302.5bn, according to the US Department of Commerce, in seasonally adjusted terms.The Bank of Japan (BOJ) announced on Friday “greater flexibility” in its monetary policy surprising global financial markets. In its policy statement, the BOJ said it will continue to allow 10-year Japanese government bond yields to fluctuate within the range of 0.5 percentage point on either side of its 0% target but it will offer to purchase 10-year JGBs at 1% through fixed-rate operations. This effectively expands its tolerance by a further 50 basis points. The yield curve control is a long-term policy that sees the central bank target an interest rate, and then buy and sell bonds as necessary to achieve that target. It currently targets a 0% yield on the 10-year government bond to stimulate the Japanese economy, which has struggled for many years with disinflation. This matters because the BoJ’s ultra-low interest rate policy was one of the few remaining forces anchoring long-term bond rates. The Japanese sharemarket plunged 2 per cent.
Expected Ranges
- AUD/USD: 0.6550 - 0.6750 ▼
- AUD/EUR: 0.5930 - 0.6130 ▼
- GBP/AUD: 1.9200 - 1.9400 ▲
- AUD/NZD: 1.0680 - 1.0880 ▲
- AUD/CAD: 0.8700 - 0.8900 ▼