AUD - Australian Dollar
Having drifted lower through trade on Thursday the AUD remained largely range bound through trade on Friday as investors appeared reluctant to extend broader directional bias leading into what promises to be a busy week ahead. Having enjoyed a period of upside momentum fuelled by a shift in risk demand the AUD upturned stalled through the back half of last week as investors focus moved away from near term optimism and back to data driven fundamentals and central bank policy. While we expect ranges to be largely maintained there is certainly scope for volatility as Q3 inflation data, building approvals, private sector credit and commentary from RBA governor Lowe ahead of next weeks RBA policy meeting all grace the docket.
The AUD has been underpinned by a shift in monetary policy expectations and this week’s data points will either support or counter that shift. A weak Q3 inflation print could force the RBA to bring forward additional rate cuts, while softness across other key fundamentals may encourage policy setters to entertain unconventional and alternative policy settings.
Looking forward we expect risks will remain skewed to the downside with supports at 0.6680 to hold through the near term. That said there is scope for upside levels of resistance to be tested through the next two weeks. If the US Federal Reserve and FOMC promise cumulative rate adjustments, RBA maintains its current rhetoric and risk appetite holds we could see the Aussie dollar test resistance at 0.6850 and 0.6890.
The USD, JPY and Sterling are the key majors in focus this week with both the Federal Reserve and Bank of Japan delivering monetary policy updates while the Pound remains hamstrung and beholden to Brexit headlines and the possibility of yet another general election.
The US Federal Reserve is expected to cut interest rates this week following a string of poor data sets throughout September. Employment growth and consumer spending have both stalled in recent months leaving the door open to the Fed possibly delivering a message of multiple rate cuts. That said, we expect the fed will proffer a wait and se approach, preferring to act should the economy slow further. Such a message could be seen as hawkish and prompt short term USD upside.
The Bank of Japan is expected to cut interest rates this week by 10 basis points, while announcing additional measures to negate the side effects of negative rates on Japan’s financial sectors. A cut could prompt a USD/JPY rally however as the effectiveness of rate cuts diminishes we anticipate the rally would be capped at or near 3%, with resistance on move approaching 109.
The Great British Pound fell through trade on Friday as the European Union failed to set a new date for Britain’s exit from the bloc. While an extension has been agreed in principle there is debate as to the length of the postponement with some European leaders, lead by French President Emmanuel Macron suggesting any form extension is simply not justified. The GBP will be beholden to Brexit headlines
0.6730 - 0.6870 ▼AUD/EUR:
0.6110 - 0.6190 ▲GBP/AUD:
1.8680 - 1.9030 ▼AUD/NZD:
1.0660 - 1.0790 ▲AUD/CAD:
0.8880 - 0.9000 ▼