AUD rebounds on heels of Chinese stimulus

Daily Currency Update

The Australian dollar outperformed through trade on Monday, rallying 1% and punching back above US$0.67, in what was otherwise a relatively quiet start to the week. Reports China’s National Development and Reform Commission would remove consumption restrictions and optimise policies to support an ailing property market helped bolster demand for commodity-linked currencies.

The AUD outpaced major counterparts and despite a broadly stronger USD closed the day higher marking US$0.6740 before edging back toward US$0.6720 leading into this morning’s open.

Our attentions turn now to the RBA Monterey Policy decision. After last week’s softer-than-anticipated Q2 inflation print, most analysts expect the RBA will leave rates on hold while maintaining a tightening bias. Despite the downturn in inflation pressures, it is unlikely the RBA has finished lifting rates within this tightening cycle.

We fully expect the baseline rate will reach 4.5%, yet the RBA will likely want to allow time for previous rate hikes to filter into the real economy, nursing consumers through a period of higher living costs in a bid to avoid recession. Outside of a shock policy update, the AUD should remain within recent ranges bouncing between US$0.6650 and US$0.68.