Home Daily Commentaries AUD range bound as attentions turn to RBA

AUD range bound as attentions turn to RBA

Daily Currency Update

The AUD tracked within a well-defined and narrow trading handle through Monday as investors appeared content in monitoring positions leading into today’s RBA policy update. With little of note on the domestic ticket, our attention again turned to China and the PBoC fixing of the yuan reference rate. Policymakers set about protesting CNH softness, again setting a higher reference rate.

The move seems to have prevented further yuan weakness and helped underpin AUD supports at US$0.6650. The AUD then jumped to US$0.6670 after a US ISM manufacturing report showed activity contracted to lows seen only in the depths of the Pandemic. The soft read prompted a downturn in US 2- and 10-year treasuries, before a rebound into the daily close.

While the manufacturing sector slides deeper into contractionary territory, it comes as little surprise and the real impact on rates and the USD has been largely muted, instead, our focus turns to the RBA.  This month’s decision is finely balanced with analysts and economists divided on whether policymakers will issue yet another rate hike.

Inflation pressures eased through May, yet housing data indicates a rebound in house prices and the labour market is proving remarkably resilient. With just a 20% chance of a rate hike, we are keenly attuned to the rate decision and surrounding commentary. A hawkish undertone could help the AUD extend back above US$0.67, while a dovish address could prompt a break back below US$0.66.

Key Movers

Price action across majors was somewhat muted through trade on Monday as investors appeared content in squaring positions ahead of the US 4th of July Holiday Tuesday. A steep fall in US ISM manufacturing activity temporarily weighed on US treasuries and the USD before recovering from showing little net movement on the day.

The euro and GBP tracked within a narrow range, while the yen showed new weakness, sliding against the USD and giving up 144.70. The yen is again dangerously close to levels at which the Ministry of Finance and Bank of Japan have stepped in to defend sustained weakness. While intervention will likely help reverse this latest downturn, until the BoJ moves off its ultra-easy monetary policy platform, the yen will struggle to mount a sustained and long-run recovery.

Our attention today turns to the RBA policy update as the major draw on the macroeconomic ticket.

Expected Ranges

  • AUD/USD: 0.6580 - 0.6750 ▲
  • AUD/EUR: 0.6050 - 0.6180 ▲
  • GBP/AUD: 1.8820 - 1.9220 ▼
  • AUD/NZD: 1.0780 - 1.0950 ▲
  • AUD/CAD: 0.8780 - 0.8930 ▲