AUD on the backfoot again as risk off mood extended

Daily Currency Update

The Australian dollar slipped back below US$0.64 through trade on Monday amid another run-on risk sentiment. Having pushed off 11-month lows last week the AUD gave up 1% to start the new week as markets absorbed mixed Chinese PMI data from the weekend, with the Caixin manufacturing and non-manufacturing index’s missing expectations by a wide margin. Mounting China worries coupled with higher and steeper yield curves sapped investor demand for risk prompting a move away from risk assets and equities. The AUD traded at an intraday low of US$0.6360 overnight and appears set to test recent lows at US$0.6330.
Our attention turns now to the RBA policy meeting. With a new governor at the helm, we are looking for any shift in the narrative that might force a move off existing market rate expectations. All in, we expect policy makers will leave rates on hold, waiting to digest more labour market data and Q3 CPI numbers before pulling the trigger on another rate hike. In the current risk off environment, the AUD will likely remain under pressure and a break below US$0.6330 could signal a break toward US$0.63.