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.
Key Movers
The USD was broadly stronger through trade on Monday, advancing against the euro, GBP and yen while giving up ground against the commodity currencies. Yen weakness helped propel the DXY dollar index higher, up 0.3% on the day. The USD /JPY pushed above 141 and 142, marking intraday highs at 142.50 after the BoJ announced an unscheduled bond purchase operation. The move was designed to cap gains on Japanese Government Bonds and looks like a clear signal that the move following last week's yield curve adjustment has gone far enough.With the euro slipping back below 1.10 and the GBP giving up 1.2850, our attentions turn to a crowded macroeconomic docket. The RBA monetary policy decisions, US ISM manufacturing data and Jolts Job openings headline the ticket ahead of NZD labour market data and US leading non-farm payroll data Wednesday and the Bank of England monetary policy announcement Thursday, before Friday’s all-important Non-farm payroll print.
With a slew of headline risk events on the horizon, we expect volatility through the back half of the week as markets attempt to juggle growth concerns against near-term monetary policy outcomes.
Expected Ranges
- AUD/USD: 0.6600 - 0.6800 ▲
- AUD/EUR: 0.6020 - 0.6180 ▲
- GBP/AUD: 1.8920 - 1.9380 ▼
- AUD/NZD: 1.0750 - 1.0850 ▲
- AUD/CAD: 0.8780 - 0.8920 ▲