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Australian dollar holding its ground on expectations of interest rate cut by the Fed

AUD - Australian Dollar

The Australian dollar touched a high of 0.6988 overnight and has managed to hold its ground despite Australian consumer confidence dipping to a two-year low. The Westpac-Melbourne Institute Index of Consumer Sentiment fell 4.1% to 96.5 in July from 110.7 in June. It seems the main catalyst for the drop has been deteriorating expectations for the Australian economy and prospects for family finances. The recent RBA cut and the federal governments tax package has had little or no impact and most likely because both were widely expected. Interestingly longer-term expectations for the economy were also reported to fall sharply, with the “economy, next 5 years” index slipping by 6.7 per cent and “finances, next 12 months” recorded an 8% drop which is slipping into net pessimism for the first time since 2017.

Meanwhile, latest numbers from the ABS showed Home Loans for the month of May fell by 1.3% following a rise of 0.6% in April. New loans to owner occupiers saw the largest fall down 2.68%. First time home buyers accounted for 28.5% of new lending, excluding refinanced home loans and interestingly the last time first home buyers claimed this level of market share was in 2012. Will first home buyers continue to see these high levels of approvals given the banks should now start to approve more loans following APRA’s serviceability changes which will ultimately increase people’s borrowing power.

There are no scheduled releases locally today. From a technical perspective, the AUD/USD pair is currently trading at 0.6974, we see initial support at 0.6910 followed by 0.6800. The market faces near term resistance at 0.7000 followed by at 0.7040.

Key Movers

The US Dollar Index which measures the strength of the Greenback against a basket of six major currencies inched lower as Powell said the central bank will “act as appropriate”. Testifying for a second day before congress, he said the bank is prepared to cut rates to support the economy which has raised hopes the first cut could happen as early as this month. Adding that "uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook”.

In the UK, the GBP/USD gained news polls report that 77% of Conservative members have already voted for who they want to become the next Prime Minister and 72% of 200k members have backed Boris over Mr Jeremy Hunt. The winner is expected to be announced on July 23.

Expected Ranges

AUD/USD: 0.6900 - 0.7020 ▲

GBP/AUD: 1.7860 - 1.8040 ▼

AUD/NZD: 1.0410 - 1.0500 ▼

AUD/EUR: 0.6140 - 0.6210 ▼

AUD/CAD: 0.9030 - 0.9130 ▼