Daily Currency Update
AUD - Australian DollarThe Australian dollar clawed its way back above 0.75 US cents on Monday as markets paused for breath after a dramatic and panicked close to last week. Having touched 6-month lows at 0.7478 the AUD mounted a mini reversal pushing back through 0.75 to hit session highs at 0.7545. It appears a degree of lucidity has returned to markets as investors take a step back to properly assess the implications of last week's Fed announcement. In our view, it seems clear the market over-reacted to the shift in FOMC forward guidance, particularly when we consider any real amendment to interest rate policy is still at a minimum of 18 months away and highly unlikely to derail the near-term reflation narrative. The market simply was not prepared for the Fed to outpace its own guidance on monetary policy normalisation and seemingly panicked in re-assessing, asset prices, yield curves and commodity prices. The question now; can the AUD recoup all of last week’s downturn? While we anticipate the AUD will continue Monday’s correction, markets will remain on edge through the near term, leaving the door open to a greater level of volatility. Our attentions remain squarely affixed to the reflation narrative ahead of commentary from Fed Chair Jerome Powell on Wednesday, with a longer look to the July 6th RBA policy meeting. RBA Governor Lowe has announced a press conference will follow the monthly policy update, suggesting a shift in RBA narrative could be forthcoming.
Key Movers
The US dollar index was down almost half a percent on Monday as commodity currencies and risk assets began clawing back losses suffered through last weeks panicked and dramatic price action. Despite holding steady against the yen, the USD gave up ground to the AUD, CAD, NZD and GBP while the euro lagged major counterparts as investors looked to commentary from ECB president Christine Lagarde. Lagarde noted she was optimistic the European recovery was on track but made a point of highlighting the difference between the US and Eurozone commenting “they're in a different stage of the cycle” her comments doused expectations the ECB might follow the Fed’s lead in amending its guidance on monetary policy and subsequently flattening the euro recovery. Our attentions now turn to a host of manufacturing and services data across Europe and the US as key indicators for ongoing transitory inflation pressure, while the Bank of England policy meeting Thursday provides another key insight into global central bank thinking.
Expected Ranges
- AUD/USD: 0.7480 - 0.7630 ▲
- AUD/EUR: 0.6280 - 0.6370 ▲
- GBP/AUD: 1.8250 - 1.8590 ▲
- AUD/NZD: 1.0740 - 1.0820 ▼
- AUD/CAD: 0.9290 - 0.9390 ▲